Like manufacturers who seek out multiple sources of distribution, life insurance companies are looking for other channels to sell their products. And recently the bank channel has been gaining traction. But while some firms have a “more-is-better” sales strategy, others have avoided selling through banks altogether, potentially giving up revenue in favor of retaining top talent.
New York Life Insurance Co. is one of those companies that made a strategic decision that the strength and value of the company was in its career agents, and it would not sell its life insurance products through banks.
While Mark Pfaff, the executive vice president in charge of U.S. life insurance and agency sales at New York Life, doesn’t believe that not selling through banks is a “missed opportunity” for the firm, Ken Kehrer, the founder of Kehrer-Limra, isn’t so sure.
“Presumably they are forgoing sales,” he said. “And banks are better positioned than agents these days to capture middle market customer life insurance sales. Life insurance agents are focusing more and more at the larger insurance companies on selling life insurance to wealthier people and business owners, leaving people like you and me out of the picture.”
Last week, Kehrer-LIMRA released its Bank Life Sales Report for the third quarter, which revealed that total individual life sales nationally were flat in the third quarter and fell 11% during the first nine months of last year, compared to the same periods a year earlier.Yet, banks were able to rake in 59% more new life insurance premiums in the third quarter, bringing bank life sales growth to 32% through the third quarter.
Even still, the reality is that bank sales are miniscule compared to the overall market, with bank sales making up only 2% of overall life insurance sales.
Yet Pfaff said that New York Life’s career agents had a strong year too, growing new sales through the end of last year by 23%, compared to a year earlier. And 2009 was the first year that new sales passed the $1 billion mark.
He also said that the type of life insurance sales made through banks is different. The more profitable sale is the recurring premium, in which the client buys a policy and pays the same premium year after year. The other type of sale is the single premium, where a client pays a lump sum. Kehrer said that 90% of sales through bank channels are single premium.
Nonetheless, Kehrer believes the challenge to depending on sales agents is that the number of life insurance agents is shrinking and the ones that exist are getting older. The solution: find alternative distribution channels to sell life insurance, which is what other companies have done by selling through banks, stock brokerage firms, on the internet, and through worksite marketing.
“New York Life is paying much less attention than other companies,” Kehrer said. “They are a very successful company, but could they also do more by having more middle market sales? Probably.”
Where New York Life has chosen not to tread, Prudential has jumped in. Joan Cleveland, a senior vice president of business development at Prudential Individual Life Insurance, said that since the Newark-based company started selling life insurance through banks a little over one year ago it has focused its attention specifically on capturing the mass middle market consumer.
“The mass middle market consumer over the years has really been underserved by the life insurance industry,” she said.
To make the life insurance products consumer friendly and bank channel friendly, Prudential created a simple life insurance product that was easy to sell. That product, which is called term insurance and is less expensive, provides death benefit protection for a specific period of time-10, 20, or 30 years. Prudential, like other life insurance companies that sell through banks, also streamlined the process: making applications shorter, bringing the application process online, and providing real-time underwriting.
The way Prudential has kept the bank channel from competing with its sales agents is by differentiating the products they sell. The life insurance sold through banks is only available up to $250,000 and is “priced for convenience,” Cleveland said. At that price there is no in-depth needs analysis, like clients would get if they met with a Prudential sales agent.
“It’s a different product and a different customer base,” she said. “The customer is a little bit younger than general Prudential life insurance policy holders and they are on a budget so they are buying a slightly smaller amount of coverage.”
Pfaff insists that New York Life defines itself as a middle market company and is able to sell to Main Street through its agents. No, the company is not the cheapest on the street, but “you are buying one of the strongest companies and there’s a value proposition that goes along with that,” he said.
Still Kehrer said that New York life isn’t changing with the times. “In the long run if the agent sales force is shrinking, the population is growing, and we tend to get wealthier every year, it seems like you are missing opportunities if you stick with a shrinking distribution force,” he said. “It doesn’t mean you can’t be successful at it, but the question is would you be more successful if you did both.”