2007 SOA Spring Meeting

Transcription

1 2007 SOA Spring Meeting The Many Ways of Selling Insurance Through Banks October 17 Presented by: Keith Dall, FSA, MAAA - Milliman, Inc. Chris Hause Hause Actuarial Solutions, Inc. Tim Neumann BankWest Investment Services Agenda A Global Perspective US Market Overview Bank Distribution Opportunities and Challenges 1

2 A Global Perspective Bancassurance Market Share: Latin America 70% 10% 10% Brazil Chile Mexico Source: LIMRA s Bancassurance Study 2

3 Bancassurance Market Share: Europe 71% 62% 59% 26% 20% Spain France Italy Germany UK Source: LIMRA s Bancassurance Study Bancassurance Market Share: Asia 50% 47% 45% 40% 25% 24% 20% 10% Taiw an** Korea* M alaysia* Hong Kong** C h in a* S in g ap o re *T h aila n d ** In d ia** * data ** data Source: LIMRA s Bancassurance Study 3

4 Back to the States Bancassurance Sales in the US (billions) $61.2 $65.1 $72.1 $74.4 $70.8 $80.3 $83.4 $80.9 $78.4 $43.1 $29.6 $34.6 $33.4 $50.2 $33.0 $41.0 $16.5 $19.2 $10.7 $10.7 $10.3 $10.6 $14.7 $2.8 $3.4 $3.5 $9.6 $6.9 $46.3 $45.5 $10.8 $8.0 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 $43.1 $14.1 $15.6 $12.5 $32.0 $27.4 $10.9 $36.4 $30.8 $12.5 $32.4 $31.3 $32.0 $30.3 $36.5 $22.5 $18.1 $18.0 $18.2 $0.3 $0.5 $0.6 $0.9 $1.3 $1.2 fixed annuities mutual funds total bancassurance products variable annuities life insurance 4

5 Deconstructing Bank Life Sales (millions in first year premium) $1,118 $986 $760 $484 $328 $192 $146 $124 $159 $166 $176 $189 single premium re c u rrin g p re m iu m The Larger the Bank, the More Likely It Offers Bancassurance 100% 54% 51% 71% 25% Community Super (less than $4) Community ($4-14) Regional ($14-24) Super Regional ($24-60) Mega (over $60) assets in billions Source: FDIC 5

6 But We are Still a Nation of Small Banks 8, Community (less than $4) Super Community ($4-14) Regional ($14-24) Super Regional ($24-60) Mega (over $60) assets in billions Source: FDIC The Players: Banks 6

7 Life Insurance Distribution Methods 70% 30% 23% 5% 8% 14% 5% licensed bankers retail agents FCs stand-alone agency advanced agents percent of banks surveyed referrals to outside agency direct response Source: Kehrer-LIMRA Bank Life Insurance Sales Study, Growth of Bancassurance Sales Forces Brokers 13,900 15,000 16,500 16,100 Platform Reps 25,000 44,800 47,700 49,400 Percent Platform Reps Registered 33% 56% 52% 61% 7

8 Revenue Penetration: Investment vs. Life Insurance Sales $26.44 $1.92 Investment Sales Life Insurance Sales Sales revenue per bank customer household Profit Margin by Size of Bank (retail deposits) Based on retail deposits 26% 30% Less than $7 billion More than $7 billion Net incom e as a percent of consum er investm ent program revenue 8

9 Bank Distribution: Many Considerations Simplified Products More Complex Products Level of Product Complexity Direct mail Internet Telesales Platform Bankers FCs, Agents Distribution Costs Mass Marketing Relationship Selling Compatible Distribution Strategy for a Bank Distribution Category Direct Response Bank Branches Other Distribution Distribution Channel Direct Mail Tele-Marketing Internet Licensed Bankers, agents Financial Consultants Advanced Agents Target Market Low Income Middle Income Low Income Middle Income Emerging Affluent Middle Income Emerging Affluent Affluent Affluent High Net Worth 9

10 But More than Half of Banks Use Only One Method 3 methods 13% 4 methods 8% 5 methods 5% 2 methods 20% 1 method 54% Source: Kehrer-LIMRA Bank Life Insurance Sales Study, Opportunities and Challenges 10

11 US Banks Have Barely Penetrated Their Customer Bancassurance Opportunity Typical bank has captured some investment business from only 8.1% of its customer households On average, banks have been selling investments for 12.8 years Banks are capturing only 26% of the financial assets of the customers who do invest through them Key Challenges Getting buy-in from bank management Encouraging financial consultants and platform reps to sell Consumer awareness and likelihood to buy 11

12 Likely to Buy? Not aware 53% Aware 47% Would not consider purchasing 46% Would consider purchasing 54% Source: LIMRA s Buying Life Insurance Through a Bank US Bancassurance at a Crossroads Typical bancassurance business contributes 2% to overall banking enterprise s bottom line Bancassurance is highly profitable, but Need to increase scale 12

13 Selling Insurance to Middle Markets Product Type - Term Insurance - ROP Term - GI/SI Whole Life - ULSG - UL with LTC Riders - SPIAs - Simplified Indexed Products 25 Selling Insurance to Middle Markets Simplify the Sale - Fully Guarantee; No Illustration - Return of Premium - Guarantee Issue - Instant Issue - Simplify Underwriting Tele-underwriting Prescription Drug Data Base 26 13

14 The Effect of Debt Cancellation on Credit Insurance Products SOA Annual Meeting October 17, 2007 Credit Insurance 101 Chris Hause, FSA, MAAA President, Hause Actuarial Solutions, Inc. 1

15 Products Premiums Markets Credit Insurance 101 Credit Insurance Products Life Disability Unemployment 2

16 Premiums Established by state (usually regulation) Life Disability Some unemployment Premium Payments Historically single premium, financed with the loan Monthly outstanding balance Open-end loans Lines of credit Credit unions Real-estate secured 3

17 Markets Banks Credit Unions Auto dealers Other dealers (furniture, electronics, jewelry) Finance companies Bank Market Installment - not secured by real estate single premium life and disability Installment - secured by real estate MOB life and disability Business and Home equity loans MOB life and disability Credit cards MOB life, disability and unemployment 4

18 Credit Union Market Almost exclusively MOB life and disability Composite rates for disability Experience rated Very few insurers in this market, majority is through a single carrier Auto Dealer Market Single premium exclusively, due to loan sales Life Disability Some unemployment 5

19 Finance Company Market Single premium historically Some carriers have moved to MOB Life Disability Some unemployment Personal Property Other Dealers Primarily single premium on installment sales MOB on revolving lines, proprietary credit cards Life Disability Unemployment Property 6

20 Gramm-Leach-Bliley Enacted in Legitimized debt protection products Exempted from state insurance department jurisdiction No rate regulation No specified benefits No licensing Immediate Effect Credit card programs were replaced by debt protection New benefits were added Installment was slower Bona fide monthly alternative Dealer business Credit Unions are a natural fit, but tend to be risk-averse 7

21 Long Term Effect Some markets will probably survive Small bank Finance company Small Credit Union Dealer Credit property GAP Creditor-placed coverage HOEPA and Predatory Lending Home Owners Equity Protection Act Enacted in If fees (including CL&D) exceed $400 (indexed) or 8% of loan, a High Cost loan Secondary market implications Predatory lending action is more on the local level 8

22 Immediate Effect Single premium was stopped MOB programs were developed APR Level monthly Critical period Disability Total written premium took a hit Closed-end MOB filling the void Credit Life: Single Premium 3,000,000,000 Premium Amounts 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000, ,000,000 Gross Written Premiums Net Written Premiums Premium Earned Premium Premium 9

23 Credit Life: Closed-End MOB Premium Amounts 160,000, ,000, ,000, ,000,000 80,000,000 60,000,000 40,000,000 20,000,000 Gross Written Premiums Net Written Premiums Premium Earned Premium Premium Credit Life: Open-End MOB 600,000,000 Premium Amounts 550,000, ,000, ,000, ,000, ,000, ,000,000 Gross Written Premiums Net Written Premiums Premium Earned Premium Premium 10

24 Loss Ratio: Single Premium Loss Ratio % Commission Ratio: Single Premium Commission Ratio % Credit Life Loss Ratio: Closed-End MOB Loss Ratio % Commission Ratio: Closed-End MOB Commission Ratio % Credit Life 11

25 Loss Ratio: Open-End MOB 70 Loss Ratio % Commission Ratio: Open-End MOB Commission Ratio % Credit Life Credit Disability: Single Premium Premium Amounts 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000, ,000,000 Gross Written Premiums Net Written Premiums Premium Earned Premium Premium 12

26 Credit Disability: Closed-End MOB 180,000,000 Premium Amounts 160,000, ,000, ,000, ,000,000 80,000,000 Gross Written Premiums Net Written Premiums Premium Earned Premium Premium Credit Disability: Open-End MOB 900,000,000 Premium Amounts 800,000, ,000, ,000, ,000, ,000,000 Gross Written Premiums Net Written Premiums Premium Earned Premium Premium 13

27 Loss Ratio: Single Premium Loss Raio % Commission Ratio: Single Premium Commission Ratio % Credit Disability Loss Ratio: Closed-End MOB 75 Loss Ratio % Commission Ratio: Closed-End MOB Commission Ratio % Credit Disability 14

28 Loss Ratio: Open-End MOB Loss Ratio % Commission Ratio: Open-End MOB Commission Ratio % Credit Disability Credit IUI: Single Premium Premium Amount 500,000, ,000, ,000, ,000, ,000,000 - Gross Written Premiums Net Written Premiums Premium Earned Premium Premium 15

29 Credit IUI - All MOB Premium Amount 1,200,000,000 1,000,000, ,000, ,000, ,000, ,000,000 - Gross Written Premiums Net Written Premiums Premium Earned Premium Premium Consumer Debt In Billions Revolving Non Revolving 16

30 Credit Insurance Net Written Premium Penetration Premium t o Debt Percent age 0.45% 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% Credit Insurance MOB Premium Plus Debt Protection Income 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000, ,000,000 - Earned Premium Premium and Debt Fees 17

31 Credit Premium and Debt Fee Penetration on Revolving Debt 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% Earned premium Earned & Fee Income Conclusions and Inferences Single Premium Credit Life and Disability premium has decreased Closed-End MOB has increased Open-End MOB has decreased Loss Experience is mixed Overall, the total pie has increased, but credit insurance accounts for a smaller share of it 18

32 The Many Ways of Selling Insurance Through Banks Tim Neumann BancWest Investment Services In-Bank Business Partners Private Banking Construction Bankers Business Banking Commercial Banking National Banking Wealth Management 1

33 Bank Customers 1. Small Business Owners Business Continuation Planning: 1. Buy/Sell Agreement Funding 2. Key Man Coverage Executive Bonus Plans: 1. REBA (restricted executive bonus arrangement) Single Employer Welfare Benefit Plan i Defined Benefit Plan Bank Customers Cont d 2. High Net Worth Bank Clients 1. Estate Planning Wealth Transfer Charitable Remainder Trusts Ideal Plan Estate Equalization (Agricultural & Business) 2