FINANCIAL SERVICES

Bancassurance
Could banks be a new channel to sell insurance?
Three partnership models

Dorlisa K. Flur, Darren Huston, and Lisa Y. Lowie

FTER YEARS SPENT LOCKED in a regulatory battle over whether banks

A should be allowed to sell insurance, banks and insurance companies

are recognizing that bancassurance – a French term for the selling of
insurance by banks – is finally becoming a reality. Most players also recognize
that the biggest untapped bancassurance opportunity is life insurance,
because it is currently distributed through expensive agent salesforces and
has yet to be purchased by many potential consumers. The question for both
banks and life insurers is how to organize to profit from this new opportunity.
The answer, we believe, is for them to form partnerships.

Our research suggests that the sale of life insurance through banks will meet
an important set of consumer needs. Most large retail banks engender a great
deal of trust in broad segments of consumers, which they can leverage in
selling them life insurance. In addition, a bank’s branch network allows the
Dorlisa Flur is a principal and Lisa Lowie is a consultant in McKinsey’s Atlanta oƒfice; Darren
Huston is a consultant in the Pacific Northwest oƒfice. Copyright © 1997 McKinsey &
Company. All rights reserved.

126 THE McKINSEY QUARTERLY 1997 NUMBER 3

face-to-face contact that is Exhibit 1

Bank penetration into life insurance market, 1994

so important in the sale of
life insurance. In France, for Bank share of written premiums
Percent
Market size
$ billion
example, over half of all life France 76
55%
insurance sales are now made Spain 7
33
through banks. In the rest Italy 10
of Europe, the proportions 20
Netherlands 18
range from just 5 percent 18
United Kingdom 76
in Sweden to 33 percent in 15
Spain (Exhibit 1). Germany 44
7
Sweden 20
5
Though a mere 1 percent of United States 235
1
life insurance sales in the Source: Datamonitor
United States is currently
made through banks, the
American market is clearly poised for a wave of bancassurance activity.
Here, life insurance is traditionally sold through independent agents. Since
this is a very costly way to deliver the product, agents have tended to focus
on wealthier individuals who know them, value their advice, and tend to
buy policies with greater face values. As a result, the majority of American
households are underinsured.

Of the 37 million households with an annual income of $35–75,000 that make

up the middle market in the United States, more than one-third possess no life
insurance whatsoever and most of the rest are underinsured, with only a
meager policy provided through their workplace. Our research shows that
such consumers are favorably disposed to a “holistic” sell that addresses all of
their asset accumulation needs: life insurance, annuities, and mutual funds.
Middle-market consumers also prefer an institutional relationship with a
bank to a personal relationship with an agent.

Using the bank channel can also boost sales productivity. A strong life insur-
ance agent, for example, might sell only one policy a week; a less eƒfective
agent, only one a month. To compensate for this low productivity, life insurers
pay agents a handsome commission on sales – sometimes as much as $1.30
for every dollar of the first-year premium, then 5 to 10 percent of annual pre-
miums thereaƒter. Naturally, these commissions are for the most part passed
on to the consumer in the form of higher premiums.

By successfully mining their customer databases, leveraging their reputation

and distribution systems (branch, phone, and mail) to make appointments,
and utilizing sales techniques and products tailored to the middle market,
European banks have more than doubled the previous conversion rate of
insurance leads into sales and have achieved outstanding sales productivity
of over four sales per week – more than enough to make bancassurance a

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BANCASSURANCE

Exhibit 2 Exhibit 3

Conversion rates of leads to sales Projections for US bancassurance

Appointments and sales per 100 leads Estimated life market after-tax profits, $ billion 18.5
Average Excellent Bancassurance
insurance insurance
agent agent Bank
100 Leads
90 8.5
80
7.5
70
6.6
60 6.0
50 Appointments 5.2
4.6
40
30
Sales
20
10 4.2
0 2.0
0.9 1.2
1% 11% 25% Yield 0.08 0.2 0.5
1995* 1996 1997 1998 1999 2000 2010
4 Sales per
<1 1 week * Actual figures; 1996–2010 are estimates

highly profitable proposition (Exhibit 2). All told, we believe that the
prospects for bancassurance as a channel in the United States are probably in
the neighborhood of 20 to 25 percent of the life insurance market, equivalent
to $9 to $15 billion in annual revenues and roughly $2 billion in profits by
2000 (Exhibit 3).

The hostile regulatory climate that used to prohibit a mix of banking and
insurance is changing. Barnett vs. Nelson (1996) allowed national banks to
sell insurance in towns of less than 5,000 people. In addition, a recent Oƒfice
of the Comptroller of the Currency (OCC) ruling authorized national banks
Exhibit 4

Steps to a bancassurance start-up

Learn

Develop Build Generate Sell the Process Administer

the product distribution* sales lead product the policy the policy

Develop Select partners Develop Develop or Underwrite Review

actuarial (if any) and or modify modify sales prospective service policy
assumptions determine mechanism for processes sales through (eg, annual
and product ownership transforming to maximize bank’s or updates, policy
specifications structure and bank close rate insurer’s loans, change
Create product responsibilities information Sell products underwriting in beneficiary,
illustrations, Install into sales leads through department toll-free
needs analyses, infrastructure Solicit leads appropriate Process sales number)
and prospectus (technology and through channels through back Manage assets
Obtain staff) if needed multiple means (direct via office(s) of to maximize
regulatory Train sales (branch referral, phone, mail, bank and returns
approval managers, mail/phone, or Internet; bancassurance Monitor
agents, and cold calls) face-to-face partners feedback
bank staff in branch; on policy
face-to-face performance
Monitor at home)
* One-time step ramp-up

128 THE McKINSEY QUARTERLY 1997 NUMBER 3

 BANCASSURANCE

to use their small-town agencies to sell insurance products through any

channel. The US Congress is currently considering a number of bank reforms
including the presence of banks and insurance companies in the same holding
company – a step that the major trade associations embrace, while recog-
nizing that many details must still be worked out.

In their natural roles and with their current skills, neither banks nor life insur-
ance companies could eƒfectively mount a bancassurance start-up (Exhibit 4).
Collaboration is the key to making this new channel work.

Banks bring a variety of capabilities to the table. Most obviously, they own
proprietary databases that can be tapped for middle-market warm leads. In
addition, they can leverage their name recognition and reputation at both
local and regional levels. Strong players also excel at managing multiple
distribution channels, cross-selling banking products, and using direct mail.
However, most banks lack experience in several areas critical to successful
bancassurance strategies: in particular, developing life products, selling
through face-to-face “push” channels, underwriting, and managing long-tail
investments (Exhibit 5).
Exhibit 5

Natural roles for partners in a start-up

Learn Natural role Possible role extension

Develop Build Generate Sell the Process Administer

the product distribution sales lead product the policy the policy

Bank
Life
insurer
Broker

Where banks usually fall short, a strong life insurer will excel. Most have
substantial product and underwriting experience, strong “push” channel
capabilities, and investment management expertise. On the other hand, they
tend to lack experience or ability in the areas where banks prevail. They have
little or no background in managing low-cost distribution channels; they
oƒten lack local and regional name recognition and reputation; and they
seldom possess access to or experience with the middle market.

These skill diƒferences suggest several forms of partnership between banks

and life insurers. A bank can either be an arm’s-length provider of warm
leads to a life insurer, or take control of bancassurance by moving into distri-
bution, selling, or even product development and underwriting. By the same
token, a life insurer may choose either to take control of bancassurance
using multiple banks as sources of warm leads, or to be an arm’s-length
provider of product and underwriting expertise to a bank. Alternatively,

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 BANCASSURANCE

banks and insurers could rely on a third party, such as a broker, to integrate
their divergent skills (Exhibit 6).
Exhibit 6

Partnership models Combining these roles produces a

number of models for bancassurance
Leveraged life Broker-driven
distribution sales delivery. Below, we describe the three
Multiple banks
Arm’s-length provide
Broker develops most promising:
and owns
(warm leads/ prospects proprietary model
reputation only)
Life salesforce Brings multiple
sells product to
prospects
banks and life
insurers together
Leveraged life distribution
Bank
Bank/life joint Leveraged bank Under this model, the life insurance
venture distribution
company takes the lead in the part-
Bank and life Bank leverages
insurer create
Leader low-cost agency
own salesforce/ nership, while several banks provide
distribution
Split agency/ Sells multiple
access to middle-market leads.
underwriting life products
profits
Leader
The main protagonist under this scen-
Arm’s-length
ario would be a large life company
(product only)
Life insurer
with a range of eƒfective distribution
channels (career agents, independent
agents, low-cost middle-market agents). A number of banks would feed its
channels with warm leads. The typical bank participant would be small to
medium-sized (less than $20 billion in assets), with a strong local customer
base but insuƒficient scale to justify a major investment in bancassurance
distribution. The smallest banks of all, with up to five branches, might
simply be approached by an individual agent who, armed with a proprietary
bancassurance process, would work with them to mine their database.

Under the terms of the leveraged life distribution contract, the life insurer
would pay the banks a fee for each lead or ultimate sale. As an additional
incentive to banks, agents mining their middle-market customer base would
also take on a portfolio of bank products to cross-sell to the customers that
they contact. For its part, the life insurer earns profits from underwriting,
asset management, and distribution – and benefits by better leveraging its
distribution system. The current partnerships between Metropolitan Life and
Glendale Federal Savings and ITT Hartford and Norwest Corporation (and
others) resemble this model (Exhibit 7).

Leveraged bank distribution

Under leveraged bank distribution, it is the bank that takes the lead in the
partnership, while multiple life insurance companies supply products for its
bancassurance eƒforts.

This model calls for a large bank with a range of eƒfective distribution
channels (branches, ATMs, trust salesforce, mail, phone). The bank mines its

130 THE McKINSEY QUARTERLY 1997 NUMBER 3

 BANCASSURANCE

Exhibit 7

Early movers in US bancassurance partnerships

Partnership Banks Life insurers Other Description
model players
Leveraged Glendale Metropolitan MetLife agents targeting middle-market
life Federal Life customers sell their full portfolio of individual
distribution Savings life products from leased space in the lobby of
Glendale branches, with roughly 1 agent for
every 2 branches
Norwest ITT Hartford ITT Hartford created separate sales unit to sell
Corp and individual life products through banks.
others Developed tailored variable life products to
appeal to bank customers. Works with private
banking and trust departments to target affluent
customers
Leveraged KeyCorp John Hancock, Large and expanding KeyCorp salesforce
bank Travelers, distributes life products from a variety of insurers
distribution Progressive, as well as cross-selling bank products. Bank uses
Nationwide, customer information to identify the skills agents
ITT Hartford, need in particular regions
and others
KeyCorp offers term life via a toll-free telephone
number, and plans to extend offerings to its
customers via direct mail
First Union Jackson National, First Union currently offers term life to its middle-
First Colony, market customers via a toll-free telephone
AIG, and others number, direct mailings, and the Internet. In
addition, a salesforce of insurance specialists sells
a full range of life products
NationsBank Various Direct NationsBank currently offers term life to its
Quote middle-market customers via a toll-free
telephone number and the Internet, and sells
whole life through direct mail. Plans to begin
selling life products through its brokerage
subsidiary
Bank/life Banc One Succession 450 Succession agents work part time in selected
joint Planning Banc One branches to sell life policies to affluent
venture International customers selected from the bank’s corporate
(subsidiary of lending, trust, and private banking information.
Manulife) Banc One owns a minority share in Succession
Charter One Jefferson- Charter One established a dedicated insurance
Pilot agency (consisting of sales reps and marketing
assistants) to offer J-P universal life products (and
eventually term and whole life products)

own customer base while playing oƒf multiple life insurers against one another
to garner the most advantageous products for its channels.

The life companies benefit by earning underwriting profits from the extra
volume and investment profits from asset management. The bank captures
distribution profits and leverages its existing channels more eƒfectively. It may
also be able to extract some rents from the life insurers.

NationsBank’s and First Union’s direct term insurance operations resemble

this model. Among the life insurers that currently provide products to banks
are CNA, Jackson National, First Colony, John Hancock, and a number of
lesser-known names.

Bank/life joint venture

The third and final type of partnership brings a large bank with a well-
developed customer database together with a large life insurer with strong

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BANCASSURANCE

product and channel experience to develop a powerful new distribution

model.

In this joint venture, the bank provides warm leads and its reputation and
brand name, while the insurer brings products and underwriting and servicing
expertise. The partners meld their individual excellences to forge a “best
practice” bancassurance operation with tailored products, tailored distri-
bution, a lead generation mechanism, and middle-market sales processes.
Although the bank may ultimately take over the distribution channels, the
life insurer will continue to benefit from the joint development through
guaranteed product sales and/or profit sharing.

In this case, the life insurer and bank share equally in the earnings. And
whatever opportunities they may lose by building a new channel rather than
leveraging their existing ones, they more than make up for by building a new
best-practice channel in which all elements – salesforce, products, and sales
techniques – have been designed, built, and tailored to work with the middle
market. Examples of such joint ventures that have been announced include
United Jersey Bank (now merged with Summit Bank) and Western National,
Banc One and Manulife, and Charter One and Jeƒferson-Pilot.

132 THE McKINSEY QUARTERLY 1997 NUMBER 3