general population-looks for that kind of statement: ‘Invest with confidence,’ or ‘You are an investor.’ They want that logo, that statement, that corporate tag line repeated every single time. And if they don’t see it, there’s kind of a subliminal reaction, saying, ‘They must not believe it. Sometimes they say it, some- times they don’t. Must be just a cute little saying. It’s not part of the culture of that firm. Every single person involved in that firm is not committed to “invest with confidence,” if it’s not on every single piece. ”’

“‘Invest with confidence,’ by the way, is T. Rowe Price’s statement. It’s on every single document: ‘Invest with confi- dence.’ And after a while, if you’re walking around the street thinking about T. Rowe Price, you think, ‘Oh, yeah, invest with confidence.’ Or ‘We invest in the mutual fund.’ You could play a little financial game with investors, asking them to identify those tag lines-and they would know them.”

Not every firm takes advantage of that, however. “There are firms,” said Gobats, “who were included in our

study, who have no tag line at all. None. And there are those, of course, who use the tag line on one piece, and not on another. It’s very often missing from the tax statement, of course.”

What is the solution? Perhaps there should be someone at the organization in charge of style.

“And the content, as well,” Gobats reminded us, “see that the

content is the same in every one. And particularly on the portfolio management side-the objectives. The objective of a fund. If the objective in the core communications is described differently in all five core communications, an investor starts to wonder about how secure his money is.”

An annuity contract may not only be inconsistent with your bank’s message. It may be inconsistent with the messages of the insurance company that issues the annuity, or the mutual fund companies whose funds are represented in the annuity.

Fortunately, companies are beginning to recognize the problem.

“I think a lot of firms are already taking that kind of action,” Gobats said optimistically. “They are reworking and appointing czars, if you will, who are in the branding milieu-branding officers, or branding equity officers, or corporate image officers. And they often come from the ranks. So they know the product, and they know who the investors are, who the clients are. And they have a commitment to service. It goes right back to service again.” H

+++

MORE STRATEGIES TO MAKE INSURANCE PROFITABLE FOR BANKS

s we reported recently, a study by the Boston Consulting A Group (BCG of Boston, Massachusetts) showed that if banks could buy insurance companies, they could make cost reductions that can really boost a key bank insurance figure: the profit per household. That’s important, because banks now pay about $2600 to establish each customer relationship. To justify that expense, banks need about $400 profit for each household. So it’s essential to start raising the profit per household on insurance.

According to BCG, a bank could eliminate a lot of excess overhead, product complexity, and outdated legacy systems after it bought an insurance company. Next, a bank could create a new overhead structure. BCG’s projected that those changes alone would raise the profitability, for those households that have an

income of $50,000 to $100,000 per year, from about $96 to about $250.

John Garabedian, the BCG vice presidenudirector who led the study, firmly believes that banks can accomplish this. He pointed out that Credit Agricole, the European bancassurer, has exceeded those figures.

Selling to core customers “Now, what about a $25,000 to $50,000 income house-

hold?’ asked Garabedian. “A small portion of bank customers are in the $50,000 to $100,000 bracket. But can we make this work with our core customer base? So we looked at that.”

(continued on page 10)

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(continued,from page 8)

BCG’s analysis conceded that today, the profits are thin for that market segment.

“It’s $9 of profit for that $25,000-to-$50,000-a-year income household,” Garabedian admitted, “which explains why tradi- tional life insurance agents don’t focus on households at that income level. There’s not enough money to be made in it for those agents.”

But that doesn’t mean banks can’t make it work.

If banks captured only 20percent of the life insurance business in transition each year, we’d be earninga $23 billion annual premium after five years.

“If you then start to move down the line to direct [market- ing], to banks, to a new system, you can get that $9 up to over $100 in profit for that $25,000-t0-$50,000 income household,” Garabedian asserted.

Creating critical mass But how long will it take for banks to create some “critical

mass” in the insurance business? “Clearly,” Garabedian pointed out, “a number of banks are

going to acquire [insurance agencies or perhaps companies] down the road, and grow the business and critical mass that way. But if we can’t, we decided to look at how much business is actually in transition every year-how many people actually shop for insurance each year, how many people switch-and use those statistics, and then make some assumptions.”

BCG looked at what would happen if banks captured a conservative 20 percent of the revenue opportunity that was in transition each year.

“Not of the whole market,” Garabedian emphasized, “just that which was in transition. What would happen is that on the life insurance side, the banking industry would create about a $23 billion annual premium industry after five years, assuming 20 percent capture of the revenue in transition, banks being subject to the same attrition that the insurance industry is subject to. And that would be about a 14 percent market share.”

“Personal auto would be the next biggest opportunity,” he continued. “There would be almost $18 billion of premium, and about a 12 percent market share. Mutual funds are actually a smaller opportunity, unless you can induce balance transfer. And here, in the life and auto side, we have not assumed that banks will actually be able to get more people who don’t buy life insurance to buy life insurance. And we haven’t assumed that banks can induce people to switch at greater rates than they’ve switched in the past. So the opportunity may actually be even bigger.”

Garabedian asserts that there is a model for achieving these kinds of successes-European bancassurers. But U.S. bankers are skeptical.

“For many of the bankers we spoke to regarding the Euro- pean bancassurers,” said Garabedian, “the response was, ‘Inter- esting but not relevant. The regulatory structure is different, the products are different. Don’t talk to me about Europe. It’s a different market, and it’s not applicable.’

“And to a certain degree, that’s true,” Garabedian con- ceded. “The regulatory environment is different. Banks have been able to own insurance companies for a long time there. They’ve had a big head start. But when you actually look at the strategies that the European banks are following to win the insurance business, all of the key success factors that they would highlight in their success are very transferrable to the U.S.”

Uncovering key success factors “BCG has actually been doing work with European

bancassurers for years,” he continued. “But as part of this study, we went back and visited three-BBV Bank in Spain, Lloyds TSB in the U.K., and Credit Agricole in France. And what I’ll share with you are the key success factors that they described in growing their business.”

First, however, Garabedian briefly described the European situation.

“The European banks in the insurance industry have cap- tured, on average, about 22 percent of the insurance market,” Garabedian informed his audience. “Let’s look by country at the market share that banks have in penetrating life insurance. In France, banks actually sell 50 percent of life insurance premi- ums. In Spain, it’s about 30 percent. On average, across Europe, it’s about 22 percent. And the banks are gaining share. This number is going up, year after year.

“What about on the property casualty side?” he asked rhetorically. “In general insurance, property casualty, it’s a little bit more similar to the experience in the United States. The average market share is in the 3 percent to 5 percent range. The European banks have more recently, in the past three to four years, really been starting to emphasize auto insurance, homeowners insurance. Here, too, while it’s still under 5 per- cent, they are gaining share. So this is a market most of them are going after aggressively, and are gaining share on.

“The three banks-Credit Agricole, BBV, and Lloyds TSB-each of them are achieving return on capital of their insurance business well above the target banks’ hurdle rates, and numbers that would be very attractive to any U.S. bank looking at this. Credit Agricole’s the number two life insurance company in all of France. BBV Bank is the number one life insurance company in Spain. All of them have penetrated at least 25 percent of their customers with life insurance products.”

MAY 1999 10 BANKS IN INSURANCE REPORT 0 1999 John Wiley & Sons, Inc.

And what are their key success factors? “The first success factor that we heard consistently was CEO

[chief executive officer] support,” Garabedian remembered. “That’s easy to say. But the person who runs this business for Lloyds TSB emphasized this point more than any other. He said Peter Ellwood made a point in external speeches, in internal speeches, to just drill in the point that ‘We are not going to be a bank selling insurance. We’re going to be a bancassurer.’ And in his mind, that was a completely different thing. ‘Insurance is not going to be an add on to what we do. It’s going to be part of a broad-based relationship, in serving the financial needs of our customers.’ And when you think about the business that way, you start to think about how you organize, how you deliver the products that you have, how you integrate those things very differently. So at Lloyds, they cited that as absolutely the number one reason for their success.”

The keys to European success include CEO support, a simple product line, and using a general sales force to reach the mass market.

A simple product line The next success factor was having a simple product line. “I probably can’t stress this enough,” Garabedian asserted.

“The actuarial and the underwriting there is as complex as it is here. But from a consumer standpoint, and from the view of the person selling these policies, the products are easy to understand; there are fewer choices. To a consumer, there’s a set of questions that helps them very easily identify themselves, matching their needs to a policy. Comparing prices is easy. And if you think about the benefits of that, it benefits not only the consumer- because the consumer has an easier time understanding their needs and buying it-it also makes the product easier to sell. You don’t need highly trained insurance experts to sell the products. You can much better take advantage of referrals and even some general sales people, particularly as some of the regulations change. So all three banks viewed this as key to success.”

Another key was using a general sales force to reach the mass market. “Most of these banks are not paying high commissions to insurance agents, who are only selling insurance policies,” Garabedian explained. “Here, we do have to wait for some of the regulations to change in the U.S. But in Europe, they’re taking advantage of the branch referrals to a general sales person-who may also be selling you investment products-to go through a simple scripted set of questions, particularly for the mass market, to provide you with a basic coverage.

“At BBV Bank in Spain,” he illustrated, “you can walk in, and a teller could refer you to a general sales person. That

salesperson will get on a computer (they’ve got very strong system support). They’ll walk you through a set of questions. A policy for life insurance gets printed out on-site. In most cases, it doesn’t require a medical exam or a blood test. In those cases where it does require a blood test or a medical exam, they still get the policy signed, and it’s contingent on a satisfactory blood test. The customer is in and out in 15 minutes. There’s not a lot of complexity, and not tremendously high incentives to have that person sell them a policy. In fact, from an incentive stand- point, it’s much more salary and bonus. At BBV, they pay salary and bonuses of about 1 or 2 months of salary in focusing on the mass market.”

Penetrating the affluent market But that’s insurance for the general market. For the affluent

market, Garabedian cited Lloyds TSB as a good example of success. “They’ve got two sales models,” Garabedian explained. “Essentially, one that came more out of the TSB heritage, which is more of a down market, almost that of a thrift institution. They’re using general sales people to sell to the mass market. But then, Lloyds [also] has a set of specialists that are focused more on the affluent, who can better understand their needs.”

This strategy grew out of Lloyds’ experience. “Initially, Lloyds had bought a life insurance company

called Abbey Life,” Garabedian noted. “And they created a special sales force. Initially, they got a big bump in productivity. Over time, though, that productivity started to decline. And what they found is that they needed to take those specialists and much more tightly integrate them back into the branches and the banks, and not just be a standalone sales force out on their own with a bank customer list-which is really the next success factor: tight integration between the bank and the insurance company.”

Successful European bancassurers also know how to lever- age bank assets and capabilities. “I mentioned that Credit Agricole is the number two life insurer in France,” Garabedian said, “with $ I 1 billion dollars in premium annually. Now, they’ve got an insurance subsidiary called Predica. If they had 500,600, or 700 people in that subsidiary, they’d probably be the low cost pro- vider in the U.S. But they have only 170 people in their insurance subsidiary-and they’re the number two insurer in France!

“How do they do it? They take advantage of the bank’s infrastructure. They take advantage of training. They take advan- tage of customer information management capabilities that the bank has. They’ll design the algorithms for the targeting. They’ll design some of the training. But they’re taking advantage of what already exists in the banks. And all of these things stress the importance of designing products for bank customers through bank channels.”

The underwriting question

without getting into the underwriting side of insurance. Many U.S. banks wonder if they can make enough money

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MAY 1999 I1

“What we found was that many of the banks think about acquisitions and alliances,” Garabedian instructed. “The first question that we heard often was: ‘Can we make enough money if we’re not in the underwriting side of things? Do I need to get into underwriting to get access to the underwriting profits?’ And what we found was that that’s actually not the right question to focus on. The more important question is: How can I best create the tailored products to be sold to bank-like customers through bank-like channels? How can I create the kind of simplified product design to make it easier and more cost-effective to sell?

“Now, getting there may be difficult through alliances,”

Garabedian conceded. “But if you can find an alliance partner that’s willing to partner with you to create that very tailored, customized offering, you can get there without having to own the underwriting. From a profit standpoint, what we found is that’s negotiable. Even in the deals that have been done in the U.S. already, the commission structure in bank insurance deals, there’s a huge range in what’s agreed to.

“There are lots of different ways to share profits,” he con- cluded, “from asset management profits and so on. And it really comes down to who’s delivering the most value in the partnership, and then structuring the sharing of profits accordingly.”

+++ CAN WE IMPROVE POINT-OF-SALE OPPORTUNITIES FOR MORTGAGE INSURANCE?

ccording to Colleen Gizinski, our industry can do alot better A in using point-of-sale opportunities to sell mortgage insur- ance. Gizinski, an assistant vice president in the direct response division for Aegon Financial Services Group (Baltimore, Mary- land), has done a lot of work in automating point-of-sale incen- tive programs, and helping to develop an automated point-of-sale training program for financial institutions. She shared some of the insights she’s gathered from her 24 years in the insurance business at a recent convention of the Association of Banks-In- Insurance (Washington, D.C.).

Using mortgage brokers to market insurance at their point of sale is an untapped opportunity in this industry.

An untapped opportunity “Point of sale in the correspondent network is an untapped,

underutilized opportunity in the marketplace,” Gizinski asserted. “Face-to-face sale, of course, provides the perfect opportunity to cross-sell products and services that can be perceived as value by our mutual customers-and that’s why this subject continues to be interesting and timely.”

But it’s a tough issue. As readers may know, mortgage brokers (part of the “correspondent network”) arrange loans so

that customers can buy homes or other property. The brokers sell some of these loans to banks, but not all of them. The broker finds investors that put up the money for the loan, and they’re not always banks. So there may be no incentive for the bank to promote insurance sales with the correspondent-because the bank would not receive any commission from the sale of the insurance if the bank doesn’t wind up with the loan servicing.

However, Gizinski said that three things were critical to success.

“Where our point-of-sale program has been successful,” said Gizinski, “is where we’ve seen three key factors. The program has had the support of top management-visible support-and is actually built into the goals of the institution. There was a tracking and recognition program, and training was consistent and ongoing. And the loan officers and/or agents were incented for sales.

“Our less-than-successful efforts have been where the coor- dination between the insurance agency and a financial institution wasn’t present,” she cautioned. “Legal or state regulations were prohibitive to the sales effort where financial institutions weren’t retaining loans, and therefore weren’t interested in point of sale.

“We’re aware of mortgage brokers who are making loans, and so that’s why we’re here talking about the subject. We try to answer the mortgage broker making loans by developing a portable product-which we at Aegon called Lifestyle Plus. And this was geared to the mortgage broker arena. We determined that we would pay $150 incentive upon issuing conversion. And I think we got about three applications in. We had all kinds of interest in it, and drew up agreements for I don’t know how many

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