Developing a relationship-based strategy may be key to improved bank/insurance cross-selling
When Gramm-Leach-Bliley officially cleared the way for U.S.-based diversified financial enterprises, it was thought banks would have few problems selling insurance products. Indeed, in the one-stop financial market format, insurance simply becomes another pitch in a bank's sales repertoire. Combine a car insurance curveball with a savings sinker and brokerage slider and you present a cross-sell of offerings consumers find too enticing to lay off.
Although a fearsome force on paper, it doesn't quite work like that at the bank branch, where a separate pitcher has to take the mound for each type of delivery.
Thanks to wealth planning tools, predictive analytics and other emerging technologies, bank employees often come into contact with likely prospects for insurance products. But although some referrals are made, large-scale success in insurance remains rare, at least compared to foreign bank counterparts.
"Banks are now selling insurance products very actively, but it's nothing like the European firms-or even the Asian firms," said Mark Sievewright, president and CEO of TowerGroup, Needham, Mass.
Sievewright and other industry analysts report that this lack of cross-sell success stems from a host of factors, such as inadequately trained and motivated sales staffs and ongoing regulatory issues. The core problem, however, may well be banks' perception of insurance as just another product to sell, instead of an opportunity to enhance a relationship.
"The banking industry is coming to understand that there's a real opportunity to cross-sell insurance products, but the primary opportunity is in the relational business as opposed to the transactional business," said Jim Campbell, senior vice president at Reagan Consulting, an Atlanta-based firm that advises banks on their insurance strategies.
THE INSURANCE TOUCH
For the most part, early efforts in bank insurance have been transaction-based, relying on traditional retail banking techniques used to sell checking accounts and loans to the mass-market consumer, according to Campbell.
But statement stuffers are hardly suited for the high-touch world of insurance sales. "What's working is embedding the insurance capability within the overall relationship management and relationship capability of the bank," said Campbell. "That's happening primarily with the larger small-business to middle-market commercial customers of the bank, as well as the more affluent individual customers."
One way to instill this type of capability into a bank is to integrate insurance agency culture throughout the enterprise. Some banks have accomplished this by acquiring and incorporating local insurance agencies. For example, BB&T, based in Raleigh, N.C., has gained a reputation in the industry for its insurance agency acquisitions.
"BB&T bought its first insurance agency in 1922," said David Pruett, chief administrative officer at BB&T Insurance. "We've just found quite a bit of symmetry between the insurance distribution business and the bank."
From the bank side, having insurance gives bankers a place to send their prospects without any qualms about the kind of service they might encounter. "You're bringing in other BB&T employees that are trained to treat clients at a standard that the company demands," said Pruett. "That's a major advantage."
In turn, acquired insurance agencies receive a steady source of referrals. Plus, BB&T brings them onto its common technology platform, thus providing its agents with a more effective set of tools. "When we acquire an agency, we do an electronic conversion from their system onto ours," said Pruett. "We have a team that does all of the mapping, does all of the conversions, and works with the bank IT people on the technical aspects of things."
Following the conversion, BB&T sends in a dedicated training team that explains the new system and brings the insurance agents up to speed with all of the help-desk and technical support available from the parent corporation. "It's pretty cool compared to what most small agencies have -maybe one person who's kind of good at it," Pruett said.
The backing of a larger entity also helps smaller insurance agencies cope with the realities of 21st-century business. "We use redundant systems for disaster recovery," said Pruett. "So if something happens, our folks can just click on another icon and they're back in business."
"Very few independent insurance agencies have the resources to be able to do that," added Pruett.
With this security blanket accompanying an array of useful support resources, BB&T's insurance agents can focus on building relationships. "What we try to do for the agencies we acquire is to allow them to get back into the business of selling insurance and taking care of their clients, and we take care of all that other stuff," said Pruett.
Among banks, BB&T certainly isn't alone in its insurance strategy. "The acquisition model is what we see most of the serious players pursuing," Campbell said.
Specifically, the "hub-and-spoke" model has proven to be an effective strategy. "You build out a delivery capability throughout your footprint by acquiring some key, high-quality platform agency pieces, and then doing smaller roll-up acquisitions to fill in throughout your footprint-and grow the organization."
In doing so, a bank can refer suitable customers to strong insurance subsidiaries within its footprint. Furthermore, the insurance subsidiaries can refer customers back to the bank. "The banks are finding that these strong, personal, individual relationships that the insurance agents have with their customers are opening some doors for them to come in and sell banking products to those customers," said Campbell. "Anecdotally, I hear that over and over again, that there is a reciprocal cross-sell effect that's happening."
So far, insurance carriers haven't seemed to mind having their agents aligned with other financial institutions. "Most of them would tell you it's an opportunity, and most of them are pretty positive about seeing their agents become aligned with banks," said Campbell. "What they're really focusing on is volume."
As an alterative to the agency acquisition strategy, some of the largest banks are lining up with the carriers themselves. "Those kind of alliances can have a place in a comprehensive insurance distribution strategy for a bank," said Campbell. "But, if that is your core delivery mechanism, then you're going to be very limited in terms of your ability to achieve economic relevance."
A WEAK BRANCH
Whether a bank follows the agency acquisition or alignment model, insurance cross-sell success on the European scale will remain elusive while certain regulatory issues remain. In part, the cross-sell gap can be attributed to U.S. regulations that make banks responsible for erecting effective barriers against the unauthorized sharing of customer information between subsidiaries. Although banks can refer customers to their insurance subsidiaries, they can do almost nothing in the way of follow-up.
"The insurance subsidiary is no different than the credit card subsidiary, or the mortgage subsidiary," said Valerie Barton, associate director of the American Bankers Insurance Association. "There are limitations to what information can go back and forth."
These protections are designed to prevent lenders from making the purchase of insurance a condition for extending a loan- notwithstanding that most banks have long since automated the entire decision-making process. "Most banks went to centralized lending, where the branch manager or the loan officer no longer have lending authority," said Barton. "You feed it into the model, and it comes back, and it's making your loan decision for you."
Still, banks have had to create complex organizational structures that reward employees for referring customers to insurance subsidiaries, while concealing the ultimate result of such referrals. Therefore, unlike the compensation structures for CDs or checking accounts, branch managers can only be rewarded for the quantity-and not the quality-of insurance referrals. "The most that you can do, with the approval of the client, is to give that insurance entity a name, address, and contact information," said Barton.
In turn, the insurance agent can only confirm the receipt of that data. Aside from that, practically the only legal way that a banker can communicate with an insurance agent is through a credit bureau.
"Insurance companies are doing credit scoring in almost every state," said Barton. "If you make an application for life insurance, auto insurance, or homeowner's insurance, one of the first things they're going to do is pull your credit score to make sure you're financially sound."
Banks Catch Break With Disclosure
Upon policy renewal, insurance carriers now have to ask some of their customers, "Do you remember where you bought that policy?"
Under Section 305 of the Gramm-Leach-Bliley Act, financial institutions have certain statutory responsibilities when offering insurance products or annuities through a bank-owned affiliate. First, they must notify credit applicants that the purchase of insurance is not a condition for receiving credit from the bank. Second, they must explain at the time of sale-and renewal-that insurance products are not FDIC-covered deposits and that some products involve investment risk.
In a February 28, 2003 letter to the American Bankers Insurance Association (ABIA), the FDIC absolved depository institutions from having to provide those disclosures upon renewal to existing customers with policies sold before October 1, 2001. Based upon ABIA feedback, the FDIC recognized that bank-owned insurance agencies would have "significant practical difficulties" in doing so, according to the letter. Accordingly, banks or their agents will not be required to gain existing customers' acknowledgement of these terms upon policy renewal.
But the notification provisions remain in force for new customers. The resulting compliance burden has fallen upon insurance companies, rather than on bank-owned insurance agents or their bank holding companies.
Although insurance agents help customers to find the right policies, the periodic renewal typically comes directly from the insurance carrier. "You could see where there would be a difficulty in the agency,"said Valerie G. Barton, associate director of the ABIA. "Every six months, when your car insurance renews, the agent would have to send out this disclosure to you: 'Do you really understand that because we're owned by a bank, that you didn't buy this product in connection with a loan?'"
By contrast, the insurance carrier knows exactly when it's time to renew. Plus, since Gramm-Leach-Bliley went into effect, carriers also know the source of each new policy. "It's being identified as being sold through XYZ Bank, or through XYZ agency owned by a bank," said Barton. "The carriers know that the bank's book of business is there."
Given the strict privacy provisions that keep banks out of the loop regarding insurance sales, insurance carriers may actually know more about an insurance agent's relationship with a bank customer than does the bank itself.