A perfect storm has arrived that has allowed bank life insurance sales growth to far exceed overall industry growth for the second quarter in a row, boosting bank life sales by 32% through the third quarter.
According to the third quarter Kehrer-LIMRA Bank Life Sales Report, which was released Tuesday, total individual life sales across the U.S. were flat in the third quarter and fell 11% during the first nine months of last year, compared to a year earlier, but 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 first nine months of last year.
Scott Stathis, a managing director at Kehrer-LIMRA, a financial services and research company, said the company has seen a sea change over the last two quarters. It was during the firm’s bank life insurance sales study group, which took place in New Orleans in early December, that it became clear that the sale of life insurance through banks was gaining traction.
“At our spring study group the go-to product was still fixed annuities,” Stathis said in a phone interview Wednesday. “There weren’t quite the signs of life yet that we saw in the second and third quarter of 2009 when things started to take off for bank life insurance sales.”
Several factors opened the door for the trend in life insurance sales through banks, he said. In the fall, the Dow Jones Industrial Average began to improve, which sent the rates on fixed annuities closer to the rates on certificates of deposit. “There is an inverse relationship between the sale of fixed annuities and the Dow Jones Industrial Average,” Stathis said, so as the stock market began to improve in the fall he expected fixed annuities to start trending downward, which is exactly what happened.
On the flip side, the sale of variable annuities and the Dow Jones Industrial Average are typically correlated, Stathis said, but last year was different. Insurance companies burned by the financial meltdown became risk averse, raising the prices on variable annuities while watering down the benefits, he said. This made variable annuities harder for banks to sell.
In addition, bank-brokerage clients are by nature more conservative, Stathis said, so bank sales of variable annuities tend to lag behind wirehouse and independent broker-dealer sales. In fact, according to Kehrer-LIMRA, banks sold only 40% as much variable premium as they had in the third quarter of 2008.
“Variable annuity sales are going up slowly, but not significantly enough to make up for the lack of sales in fixed annuities,” Stathis said. “So everyone was looking for the next go-to product, which slowly but surely has become life insurance.”
Life insurance companies have also helped to boost the sales of their products by designing them to be much simpler for bank representatives to sell. One improvement has been that applications have become shorter and the application process has been brought online. The processing of applications has also become more streamlined so clients can get responses very quickly, almost like a CD or a money market fund.
But not all insurance companies sell life insurance through banks. New York Life Insurance Company, for example, only sells its life insurance products through its own agents, preferring that they have no competing distribution channel on life insurance.
“While we are a leader in bank sales of annuities, New York Life sells life insurance through a career agent force of 11,500 agents in the U.S.,” said William Werfelman, a spokesman for the company. “In fact, recruitment of new agents set a new record in 2009, up 2.5% over the record recruitment year of 2008.” (Read more on New York Life here.)
At the same time other insurance companies have slashed their sales forces opening the door for this new trend of selling life insurance through banks.
For the first time, life insurance revenue in the first nine months of last year accounted for almost 6% of investment revenue, according to the Kehrer-LIMRA report. “Until recently, bank life sales were showing no signs of life”, said Janet Cappelletti, Kehrer-LIMRA’s associate research director.