Are banks finally making inroads into the insurance market? It would appear so. Last year, banks' sales of traditional insurance products rose 35 percent to $8.6 billion, according to a study by the Association of Banks in Insurance. However, banks still have a long way to go. Although insurance sales in the banking industry are gaining momentum, banks' collective share of total premium is still well below 5 percent of the nation's total premium volume.
The problem is that banks still have not developed a business model that capitalizes upon their unique distribution abilities. Rather, most banks have been buying agencies or partnering with traditional agencies and trying to shoehorn these entities into their existing infrastructures. It won't work. Here's why: The traditional agency system is faltering. Agent-based distribution is expensive, unwieldy and personality-dependent -- a combination that has left large segments of the population underserved. Banks that adopt this business model risk saddling themselves with the same problems that plague the traditional insurance industry.
Instead of duplicating the agency system, banks would be better off to create a business model that combines "high-touch" with "high-tech." How? Perhaps by emulating one of the nation's foremost financial services companies, USAA. This once stodgy firm has grown from a small product-focused provider of property and casualty insurance (P&C) to a customer-focused financial services giant. And it's done it without commissioned agents or bricks-and-mortar. In fact, USAA conducts virtually all of its business via direct marketing, with inbound telemarketing at the center of the company's distribution strategy.
For many institutions, following in the footsteps of direct marketers like USAA will open the doors to profitable insurance sales. Through inbound call centers, banks can provide consumers with on-demand service at reasonable per-transaction costs. Face-to-face, direct response and online sales will supplement and enhance the efficacy of the inbound call center.
A customer is calling
While the agent channel still accounts for the majority of insurance sales, direct distribution via mail or telephone is quickly gaining ground. Already a large share of automobile and homeowner's business is in the hands of direct marketers like Geico, USAA, Safeco, and Countrywide. These companies excel by blending the techniques of direct mail and call-center marketing to meet consumer demand for convenience, superior service, and competitively priced products.
USAA, for example, has made extensive investments in its call center and information systems. Its databases can reportedly store as many as 30,000 pieces of data per customer record. The company uses this information for predictive modeling that enables it to target customers and tailor offerings to their needs.
In addition, when a customer calls USAA for any product, the representative has access to a complete profile of the customer, which makes it possible to serve and sell to customers with one phone call. In 1996, on an average day, USAA call center reps fielded 350,000 voice calls and completed 12,000 computer transactions. Since then, its membership has grown by one-half million.
Creating "sales centers"
If banks are to win a significant share of the insurance market, inbound call centers will be the linchpin of a profitable distribution strategy. Call centers allow banks to offer personal service at lower costs. At the same time, they provide opportunities to turn service calls into sales.
Unfortunately, banks have not had much success in creating "sales centers." Rather, they have tended to try to steer inbound callers to automated systems. That's often a grave mistake, says David Howe, a partner in Booz-Allen & Hamilton. In fact, service calls are a rich source of potential sales. In a study of 30 call centers -- two-thirds of which were in financial services firms -- Howe found that inbound calls typically yield much higher sales than direct mail or outbound telemarketing.
A key challenge for banks expanding their direct marketing efforts will be in finding the best products to sell by mail or telephone. Products that lend themselves well to marketing through direct channels include: P&C and credit coverage, term life products, small business products, mortgage life and accident plans.
Banks that master direct marketing will be well-positioned to grow their customer wallet share, particularly in P&C lines and middle-market life insurance products. Datamonitor estimates that telephone insurance sales will account for 10 percent of the personal auto market by 2000, up from 6.7 percent in 1994.
By stripping out high commission costs and selling directly to consumers via call centers, banks eliminate much of the delivery and administrative costs that curb insurance companies' ability to sell profitably to a broad base of customers.
Banks also can take advantage of the fact that insurance purchases tend to evolve around the same life events that prompt the purchase or use of other financial products. For example, marriages, births, job changes, retirement planning, and home purchases may all trigger the need for a banking product such as a loan, a new account, a credit card, a savings account, as well as an insurance product, such as auto or homeowner's coverage, life insurance, long term care policies or annuities. This creates opportunities for banks to "bundle" financial products typically associated with specific life events.
By integrating direct mail, call-center marketing and branch-based selling, banks can effectively target customers at specific life stages and sell them a wide array of financial products. For example, bankers can set up in-branch hotlines connected to insurance experts at a remote call center. Branch staff are then compensated for hooking up customers with call-center representatives.
Banks are already selling mortgages this way. Through partnerships with Cendant Mortgage, firms like U.S. Bancorp, USAA, and Merrill Lynch offer mortgages by providing their frontline staff with a toll-free number they can use to hand off potential customers to a mortgage professional.
The alliance solution
It's imperative that bankers move quickly to secure a place in the insurance market. Fortunately, bankers don't have to build an insurance call center from the ground up. Instead, they can acquire such services through strategic alliances. By partnering with a specialized third-party marketer, institutions can participate in the potentially lucrative insurance market without expending huge amounts of capital. That's important in an untested arena where ultimate returns are still unknown.
By blending strategic partnerships with their own core competencies, banks not only reduce risk, but gain the ability to bring a broad spectrum of products to market quickly. In addition, partnering helps institutions leverage their existing branch and nonbranch delivery systems, which could eliminate up to half of the typical distribution and administrative costs incurred by traditional insurers.