Bridging the Cultural Divide Between Banks and Life Insurers TM 2010 Australia Bancassurance Study Copyright 2010 C F Effron Company, LLC. All rights reserved.
Foreword On behalf of RGA International, I would like to thank every participant in this, our inaugural Australian Bancassurance Study. Your valuable contributions will enable this Study to help banks and life insurers understand more completely the many challenges and opportunities in this important distribution channel. We believe RGA International s ongoing sponsorship of this Study demonstrates our interest in, and commitment to, your efforts to develop Australia s bancassurance market. We hope you enjoy reading this Study, and that the findings prove to be a useful resource. We look forward to continuing to encourage your efforts to grow this exciting business. Thank you. Graham Watson Senior Executive Vice President and Chief Marketing Officer Reinsurance Group of America, Incorporated Chief Executive Officer RGA International Corporation I would like to thank RGA International, the Australian team, and the bank and life insurer participants for their support of and interest in working together to understand the similarities and differences that play roles in defining the two cultures. These efforts will help to define a more robust common bancassurance culture in Australia, and around the world. This Study is just the beginning of the conversation; not the final word on the subject by any means. It has been a pleasure working with so many talented and dedicated people, and I am looking forward to continuing to Bridge the Cultural Divide and finding new, innovative answers to the issues uncovered in this inaugural Australian Bancassurance Study. Carmen Effron President C F Effron Company, LLC Weston, Connecticut USA 1
About RGA Reinsurance Group of America, Incorporated (RGA) is the second largest life reinsurer in North America and third largest in the world, with approximately $2.4 trillion of life insurance in force and assets of more than $27 billion. The company serves clients in more than 70 countries from subsidiaries, branch operations and representative offices in 23 countries around the world, delivering expert solutions in life reinsurance, facultative underwriting, risk management, product development, and capital-efficient reinsurance services. In 2009, RGA was named: Life Reinsurance Company of the Year by The Review worldwide reinsurance magazine; No. 1 in Business Capability by NMG Consulting in its Australia, Asia Pacific, U.K. and Canada studies; Best Overall Life Reinsurer by North American life insurers participating in the Flaspöhler Cedant Survey; and Best Reinsurer by Risk Management, Insurance & Finance magazine (Taiwan). More recently, RGA was honored for the second consecutive year as Australia and New Zealand Reinsurance Company of the Year by the Australia and New Zealand Insurance Industry Awards. RGA Australia s office provides a national footprint and ensures localized support to clients based in and around Sydney, Melbourne, and Brisbane. RGA Australia also supports clients based in New Zealand. The office serves all lines of individual and group life reinsurance with both traditional and non-traditional solutions, and has treaties in place with all major life insurance companies in the region. About C F Effron Company, LLC C F Effron Company, LLC, is a leading bancassurance consulting firm in Weston, Connecticut, U.S.A., that provides services to insurance companies, banks and professional associations of both institutions throughout the United States and internationally. Its principals and associates have worked with over 100 institutions in the financial services industry, providing consultative services that include research, developing strategic plans, examining trends, assessing bancassurance opportunities and distribution channels, and advising on agency acquisition/integration, market entry, business modeling and sales process redesign. In addition to conducting the Bridging the Cultural Divide Between Banks and Life Insurers studies, C F Effron also conducts an annual analysis, The Effectiveness of Bancassurance Distribution. For questions, or to have the results of this Study tailored to your specifications, please contact Carmen Effron, President, at +1.203.226.2645 or e-mail her at carmen@cfeffroncompany.com. Acknowledgements C F Effron Company, LLC would like to extend a special thanks to Daniel Jones of DS Jones & Company, who invested significant time and resources in the content, design and execution of the questionnaire and the Study. RGA Australia Contacts André Dreyer Vice President, Business Development RGA Reinsurance Company of Australia Limited adreyer@rgare.com T +61.2.8264.5879 M +61.404.163.508 Beau Riley Head of Retail Business Development RGA Reinsurance Company of Australia Limited briley@rgare.com T +61.2.8264.5816 M +61.414.339.170 2
Table of Contents Foreword... 1 About RGA... 2 About C F Effron Company, LLC... 2 Acknowledgements... 2 RGA Australia Contacts... 2 Introduction and Background... 7 Executive Summary... 8 Highlights... 8 Recommendations... 10 Methodology... 11 Respondent Profile... 12 Market Share and Experience... 12 Policies Sold... 14 Premiums Generated... 15... 16 Distribution... 16 Distribution Profile... 16 Reasons for Distributing Insurance... 17 Channels... 20 Selection of Partners... 20 Banks Selecting Life Insurers... 22 Life Insurers Selecting Banks... 23 Preferred Partnerships... 24 Awareness and Expansion of Insurance... 25 Marketing and Sales... 26 3
Bank-Life Insurer Relationships... 26 Distribution Approaches... 29 Selling Factors... 30 Methods of Selling Lead Generation... 33 Effectiveness of Selling Methods... 36 Product and Process Design... 39 Bank-Life Insurer Relationships... 39 Product Offerings... 41 Administration and Operations... 42 Bank-Life Insurer Relationships... 42 Bank-Life Insurer Training... 44 Outsourcing... 47 Effectiveness... 49 Obstacles to Selling Life Insurance to Bank Customers... 49 Integration of Insurance and Banking Products... 51 Risk and Profitability... 52 Bank-Life Insurer Relationships... 52 Reinsurance and Risk-Sharing... 54 Profitability of Underwriting... 54 Underwriting Methods... 55 Ripoll Inquiry... 57 4
Table of Figures Figure 1 Banks and life insurers by size... 12 Figure 2 Selling experience... 13 Figure 3 Policies sold... 14 Figure 4 Life Insurer total annual premium sold ($Amill)... 15 Figure 5 Distribution approaches... 16 Figure 6 Bank perspectives of core nature... 17 Figure 7 Life insurer perspectives of core nature... 17 Figure 8 Life insurance program expansion plans... 17 Figure 9 Reasons for banks to distribute life insurance products... 18 Figure 10 Optimal distribution relationships... 18 Figure 11 Distribution of scores for figure 10 Optimal distribution relationship... 19 Figure 12 Life insurer non-bank distribution channels... 20 Figure 13 Number of partners... 21 Figure 14 Exclusivity and ownership... 21 Figure 15 Bank factors for selecting life insurer distribution partners... 22 Figure 16 Life insurer factors for selecting bank distribution partners... 23 Figure 17 Services for preferred partnerships... 24 Figure 18 Awareness of life insurance sold through banks... 25 Figure 19 Options for growing a bank s life insurance practice... 25 Figure 20 Marketing and sales relationship... 28 Figure 21 Distribution effectiveness... 30 Figure 22 Factors in selling life insurance... 32 Figure 23 Lead generation... 34 Figure 24 Lead generation from direct mail... 34 Figure 25 Specialized services... 35 Figure 26 Free insurance review and incentives... 35 Figure 27 Selling methods... 36 5
Figure 28 Distribution of scores for figure 27 Effectiveness of bancassurance selling methods... 37 Figure 29 Length of platform sales cycle... 38 Figure 30 Product and process design in relationship... 40 Figure 31 Bank customer needs being met by sales of life insurance... 41 Figure 32 Administrative factors in optimal relationship... 43 Figure 33 Training factors in optimal relationship... 45 Figure 34 Concern about number of well-trained agents... 46 Figure 35 Outsourcing of functions... 47 Figure 36 Distribution of scores for figure 35 Outsourcing... 48 Figure 37 Obstacles to bank sales of life insurance... 49 Figure 38 Distribution of figure 37 Obstacles to bank sales of life insurance... 50 Figure 39 Client relationship management (CRM) systems... 51 Figure 40 Risk and profitability in relationship... 53 Figure 41 Risk-sharing mechanisms... 54 Figure 42 Increase or decrease in bancassurance profit margins... 54 Figure 43 Bank underwriting methods... 55 Figure 44 Life insurer underwriting methods... 56 6
Introduction and Background Introduction and Background This Study is the first exploration of the cultural and perceptual issues that come between the Australian banks and life insurers engaged in the business of bancassurance. It investigates concerns confronting the banks and their life insurance partners, and provides a cross-sectional analysis and snapshot of a sample of the population at a single point in time. C F Effron Company, LLC, conducted this groundbreaking Study to quantify the qualitative issues that have created and still do create barriers to bancassurance success in Australia. It also sought to understand the roots of the business culture differences between the two institutions their distinctive business models, how each is regulated, and how each attracts customers, distributes products, and makes a profit. This Study examines the full range of issues facing the two organizations as they strive to develop better and more effectively integrated working relationships. Questions were asked to determine the importance to banks and life insurers of 303 attributes of bancassurance distribution, marketing and sales, product and process design, administration and operations, effectiveness, and risk and profitability. Both institutions were also probed about their interest in those attributes, and their satisfaction with how bancassurance needs are being met. A statistical gap analysis technique was used to quantify the cultural issues, using the hard evidence gathered via the questions, which were designed to uncover and explore the exact nature of the many qualitative issues banks and life insurers must tackle to achieve success. The findings show that major cultural and perceptual gaps still exist between Australian banks and life insurers, especially in their levels of satisfaction with these issues. These gaps form the basis for this Study s recommendations regarding what is and will be needed to optimize their joint distribution relationships. The Study s analytical framework recognizes the following: The differences in the answers to the same questions, using the gap analysis technique to determine the extent of those differences. The distribution of the scores; i.e., the percentages related to each score along a continuum of five points, ranging from most important to least. The relative rankings of attributes for particular questions, scoring from highest to lowest along a continuum. This Study aims to shine a clear light on the bancassurance relationships in which Australian banks and life insurers are currently engaged. The questions sought to determine the behavioral clues that lead to success, identify weaknesses, and ideally generate information which can launch substantive dialogues about these issues. Once banks and life insurers can agree on barriers to future growth, identifying how to surmount the barriers will become the heart of an ongoing dialogue. 7
Executive Summary Executive Summary Banks and life insurers are constantly exploring new ways to develop bancassurance products, improve and streamline processes, and market more effectively to their customers. To accomplish this, it is imperative to focus on the elements and issues that show the largest gaps and where frank discussions can lead to developing solutions. We established rankings of gaps between scores based on the numerical differences that were generated by the answers. The cutoff points between these relative rankings are generally consistent with those generated by other bancassurance Studies conducted by C F Effron Company, LLC, and sponsored by RGA. Of the total attributes reviewed for this Study, 14.6% had gaps of 1.5 or greater between bank and life insurer perceptions, which are considered extremely significant from a statistical point of view. Approximately 27% of the attributes were either significant (0.6-0.9) or very significant (1.0-1.4) (see detailed table in Methodology section). Highlights Wide perceptual gaps exist between banks and life insurers in a number of areas. A total of 37 elements had gap scores greater than 1.5 on a five-point scale, with 13 scores having gaps of 2.0 or greater. The overarching themes of these gaps focus on perceptions around distribution, marketing and sales, and administration. These scores expressed clearly the need for better business processes where technology could be used more effectively and, not surprisingly, more efficient and more enhanced (that is, better) sales support. The issues listed below are the ones where banks and life insurers are farthest apart in culture and perception, with gap scores of 2.0 or greater. (Scores in red indicate the life insurer score is higher; blue scores, the bank.) Distribution Placement of in-branch insurance agents (a 2.5 importance gap from the life insurer s perspective) Create or support profiling of a bank s customer base (a 2.0 importance gap from the life insurer s perspective) Marketing and Sales Integration of life insurance into bank s customer database to facilitate sales and avoid redundant entry of data (a 2.0 satisfaction gap from the bank s view) Provide effective sales support to the bank (a 2.0 satisfaction gap from the life insurer s observations) Provide a product matrix for a more logical referral process (a 2.0 importance gap from the life insurer s perspective) Buying an agency and integrating it into the bank (a 2.0 importance gap from the life insurer s view) Sophisticated understanding of bank customer demographics (a 2.0 importance-satisfaction gap for life insurers) Use of standard life insurance application (a 2.0 importance-satisfaction gap for life insurers) Processing support; ease of doing business, cycle times, etc. (a 2.3 importance-satisfaction 8
gap for life insurers) The use of independent brokers to generate leads (a 2.0 importance gap between life insurers and banks) Administration Bank customer database management expertise (a 2.5 importance-satisfaction gap for banks) The life insurer provides sales training to bank personnel (a 2.3 importance-satisfaction gap for life insurers) Products are integrated into the bank s procedures and systems at point of sale, e.g. automated forms (a 2.3 importance-satisfaction gap for life insurers) Executive Summary In every country where C F Effron Company, LLC and RGA have conducted a bancassurance Study since 2003, banks life insurance operations have not seen dramatic improvements in either customer access to insurance or the integration of insurance into the banks branch marketing efforts or customer database. Given all the advances in automated underwriting technology and in database and client management systems, especially in the past few years, serious dialogues on these two issues should begin immediately. Lack of senior management commitment is also a significant issue in every country where we have conducted these Studies since 2003, and Australia is no exception. Interestingly, and for the first time, neither life insurers nor banks are pleased with senior management commitment at their institutions (instead of just life insurers), showing importance-satisfaction gaps of 1.7 and 1.5, respectively. Australian banks and life insurers must address this, especially since all of the participants in this Study indicate they are planning to increase the scope of their bancassurance programs, and that bancassurance revenue currently represents a significant income stream. If bank and life insurer senior managements are not committed, funding for bancassurance will suffer, and growth objectives will be harder to achieve. Finally, at this point, both banks and life insurers agree that bank customers are generally not or are only partially aware that insurance is being sold through the bank. This indicates a need for better and more structured marketing awareness campaigns. ******* While there are no quick fixes in bancassurance, time, attention to, and scrutiny of the issues uncovered in this Study of both banks and life insurers in Australia will help mitigate the gaps exposed. When business processes, technology and underwriting are integrated, efficiencies of scale can and will begin to emerge, and the business of bancassurance will become more seamless for Australian banks and life insurers. Change will only occur when banks and life insurers begin to listen to one another s concerns and come to understand each others constraints. As the overwhelming intention of both banks and life insurers is to expand sales of life insurance products through the bank channel, consistent attention to closing the very large cultural and perceptual gaps uncovered by this Study will be vital. 9
Recommendations Recommendations Banks in Australia clearly continue to want life insurance programs, products, and processes tailored to their specific client relationship structure and the transactional nature of their customer interactions. Additionally, they understand that the direct, financial advisory and retail banking sales channels each have different product and process requirements. Banks also want streamlined underwriting processes, acknowledgement of underwriting outcomes, and case management procedures for those client segments that require full underwriting. And they want their life insurance partners to supply that expertise. It has been said that fit corporations master the art of competition when acting alone, and collaboration when part of a network. After reviewing all of the gap scores in this Study, we believe the following recommendations will help facilitate closer and more effective bank-life insurer collaborations. Make bancassurance a commitment for both bank and life insurer senior management teams by focusing on its profitability, income generation potential, and the added value of the insurance relationship in terms of client longevity with the bank. Build life insurance as part of (not separate from) a bank s sales structure, and understand and use bank customer demographics to enable better targeted and more successful sales efforts. Standardize life insurance application and front-end profiling processes to recognize opportunities and enable appropriate underwriting. Complete transactions at the point of sale and/or refer appropriately if more sophisticated products and/or strategies are indicated. If necessary for more complex life insurance sales, place advanced agents in strategic branch locations. Work with reinsurers and technology providers to answer the need for point-of-sale automation, incorporating application standardization, point-of-sale underwriting outcome notification, and provision of an electronic link between banks and the life insurance companies with which they partner to reduce cycle time and increase real-time information transfer. Utilize the bank s customer information database more effectively to generate leads, uncover opportunities, and determine the next best insurance sale. Integrate life insurance products with bank procedures and systems at the point of sale. Integrate life insurance sales into bank sales goals through incentives, referral fees, productivity credits and/or other measures to help track and encourage productivity. Allow more training time for bank sellers of life insurance products, either on bank premises or via electronic methods (Internet, CD-ROM, telematic, virtual), that can be delivered directly by life insurers, in order to increase the bancassurance salesperson s knowledge and comfort. Design bancassurance schools with diplomas and awards for graduation. Develop marketing outreach and educational programs targeted to both bank clients and the general populace to increase consumer awareness of bancassurance. 10
Methodology This Study is based on two surveys: one for life insurance companies that distribute through banks and the other for banks that distribute life insurance. Questions were essentially the same, differing only in their recognition of each respondent s role in the bancassurance relationship. The questions encompassed issues related to selling life insurance through Australian banks. They focused on a wide range of attributes in six general categories: distribution; marketing and sales; product and process design; administration and operations; effectiveness; and risk and profitability. Eight completed questionnaires were returned four from banks, four from life insurers. Given the size, scope and bancassurance experience of the eight respondents, a major portion of the Australian bancassurance market is covered by this Study, making these results credible. All four life insurers provide insurance through multiple channels (including banks). All four are considered, by the Australian definition, financial services institutions, as they offer a full range of banking and insurance products and services. Methodology Demographic information, solicited from respondents and included in the detailed findings section, indicates bancassurance in Australia is growing and vibrant. Respondents were asked to assign scores ranging from 1 to 5 to denote their experiences and perceptions with a broad range of bank-life insurer interactions. The scores are grouped into five categories: 1 (least), 2 (partial), 3 (neutral or generally), 4 (more) and 5 (most). Overall scores represent the combined results of the respondents and are shown in tables. The cultural divide between banks and life insurers was quantified by tabulating averages separately for bank and life insurer scores, determining the gaps between those scores, and then analyzing those gaps. Gaps were determined by subtracting the smaller score from the larger one. The larger the gaps, the larger the cultural divide. If the life insurers score is higher, the gap score is displayed in red. If the bank respondents score is higher, the gap score is displayed in blue. If there is total agreement and no gap score, then the color green is used. Below follows the distribution of the gaps of all 303 attributes measured in this Study. 11
Respondent Profile With half of life insurer and bank respondents holding more than $A10 billion in assets, we are confident that the results of this Study provide salient indications about the attitudes of the banks and life insurers in Australia s bancassurance market. Therefore, when substantive discussion on the findings occur, it is highly likely that the market could experience notable change. (Note: no respondent banks had assets between $A1 billion and $A10 billion.) Market Share and Experience Figure 1 Banks and life insurers by size Banks by Asset Size Respondent Profile Insurers by Asset Size 12
Banks and life insurers that responded to this Study are fairly experienced in bancassurance, with the majority stating they have been in bancassurance for more than 10 years. Figure 2 Selling experience Numbers of Years Selling in Bank Channnel (2010) Respondent Profile 13
Policies Sold Approximately 68% of the banks and 75% of the life insurers wrote more than 10,000 policies in 2009, an average of 192 policies per week. However, 25% of the life insurers and 33% of the banks sold between 1,001 and 5,000 policies (figure 3). (Note: Only three banks answered this question.) Figure 3 Policies sold 2009 Number of Policies Sold Respondent Profile 14
Premiums Generated Approximately $A60 million of total annual life insurance premium is generated by the surveyed banks for the surveyed life insurers. This encompasses all recurring premium bancassurance products and approximately $A43.5 million of single premium in 2009. For new life insurance specifically sold through the bancassurance channel, recurring premium products totaled $A18 million and $A4.5 million for the single premium (figure 4). Figure 4 Life Insurer total annual premium sold ($Amill) Life Insurers Total Annual Premium Generated from Bank Partners Respondent Profile $Amill 15
Distribution This section explores the commitment to the bancassurance channel from both the life insurers and the banks perspective. Study participants provided their perspectives on the importance of optimizing their relationships, and the key reasons to distribute life insurance through banks. Prior to examining each function in detail, participants indicated their overall commitment to bancassurance, profiled their existing partnerships, and indicated their ideal number of partners. In addition, differences between bank and life insurer perspectives as to the importance of factors driving the partnerships were compared and contrasted. Distribution Profile Respondents were asked to detail how they were selling insurance products at or through banks (figure 5). Most of the bank respondents use a combination of branch staff and agency as their primary distribution method, while most of the life insurers indicate they use a broader and more varied combination of methods. Figure 5 Distribution approaches Distribution How are insurance products sold/distributed Bank Insurer at/through banks? % % Yes Distribution Yes Distribution Brokers 0 0.0% 1 12.5% Direct 1 16.7% 3 37.5% Agency 2 33.3% 2 25.0% Branches 3 50.0% 2 25.0% The questionnaires defined: Branch as the branch location where a bank employee sells insurance products, and one where insurance is not the main focus of the branch s daily activity Brokers as specialized agents selling products from more than one insurance company Agency as specialized sales personnel within the bank who only sell insurance Direct as contacting potential bank customer applicants via mailings or call centers, using names prospected from bank databases Unlike other countries, life insurers in Australia also use the term direct to refer to retail consumer credit policies sold to customers. In this Study, however, direct is used only as indicated above, in order to retain consistency with Studies conducted in other countries. Bancassurance seems to be moving away from using just one form of distribution, as the most successful bancassurance programs use all of the distribution methods available to them within the bank. 16
All of the banks in this Study are defined as financial services institutions that offer a full range of banking and insurance products (figures 6 and 7). Figure 6 Bank perspectives of core nature Bank core nature of its bancassurance business Financial services institution offering full range of banking and insurance products and services Figure 7 Life insurer perspectives of core nature Bank % Distribution 4 100.0% Financial services institution offering full range of banking and some insurance products and services 0 0.0% Non-banking financial company (NBFC) offering credit only 0 0.0% Insurers core nature of its bancassurance business Insurer % Distribution Multiple channel insurance provider, including through the bank 3 75.0% Insurer dedicated to the sale of insurance to client base of the bank 1 25.0% Insurer, however not using the typical bancassurance model, but still has access to bank customers 0 0.0% The expansion of insurance programs is still expected to be strong, with anticipated increases in the scope and number of products sold in their bancassurance operation (figure 8).This is an indication of the relative health of bancassurance in Australia. Distribution Figure 8 Life insurance program expansion plans Reasons for Distributing Insurance Banks and life insurers were able to choose from four attributes to indicate their reasons for engaging in bancassurance, and the value each institution ascribes to it (figure 9). Reasons and expectations are fundamentally aligned for both. However, banks rate one-stop shopping for financial services as the most important attribute, while life insurers rate strengthen and retain existing customer relations as the most important. Both rank fee income and attract new customers of lesser importance. 17
Banks and life insurers also agree that selling life insurance in a bank does not attract new customers to a bank. Banks ascribe even less importance to it than do life insurers, generating a significant gap of 0.8. One-stop shopping for financial services, meanwhile, is considered by 75% of the banks and 50% of the life insurers a highly important reason to distribute life insurance products. Figure 9 Reasons for banks to distribute life insurance products Distribution Banks and life insurers are fairly well aligned on the elements they see as necessary to form an optimally functioning relationship between them (figure 10). The largest area of disagreement, with a significant gap of 0.7, is the role third-party distributors (TPD) or third-party marketers (TPM) will play. (TPD and TPM are used interchangeably to refer to the independent distribution specialists that offer life insurance products from one or more providers to a bank s client base.) Questions about potential role of TPM s in the future of bancassurance are due to the heightened compliance environment stemming from the Ripoll Inquiry report. Banks believe these third-party entities will become a more important presence in the Australian bancassurance market, and will give banks wider product choices and increase product neutrality. Figure 10 Optimal distribution relationships 18
Figure 11 Distribution of scores for figure 10 Optimal distribution relationship Although scores are fairly well distributed, only 50% of banks agree with the statement that the distribution of insurance is strategically most important, whereas 75% of the life insurers believe it is. It is essential that all levels of bank management buy into the idea that distributing life insurance is important, or the capital and attention needed to make and keep bancassurance successful in Australia will not be forthcoming. Distribution 19
Channels Life insurers were asked which distribution channels, other than banks, they use to sell their products (figure 12). Direct mail, outbound call centers and Internet fulfillment are used by each of the life insurers participating in this Study. To a lesser extent, independent brokers, agency forces, and inbound call centers are used as well. Each life insurer uses an average of at least two other channels in addition to the bank channel to distribute products. Figure 12 Life insurer non-bank distribution channels Distribution We believe this result supports the idea that while more than a few Australian life insurers have developed specific products for the bank channel, banks are just another sales and distribution channel for the life insurers and not necessarily even an equal partner in many cases. This finding has implications for the design of life insurance products sold through banks, as many life insurers apply the same application and underwriting processes to bank channel customers as to customers in their primary distribution channels. The only sales to individuals by a bank that can reasonably be compared to a traditional life insurance financial advisory sale are the sales to high-net-worth trust or private banking clients, which have the added complexity of the bank branch s life insurance agent or platform salesperson having to first cultivate the bank relationship manager as a referral source. Selection of Partners Banks and life insurers were each asked to indicate the number of partners with which they are currently working (figure 13), as well as the number they believe is ideal. Additionally, they were asked about exclusivity arrangements. Four life insurers and one bank have exclusivity arrangements (figure 14). All four of the life insurers are owned by banks, but none that answered the question work exclusively with one bank. Most Australian banks today partner with five or fewer life insurers, and would like to keep that number small. One bank, in fact, has only two partners, and would like to reduce that number to one. Only one of the life insurers would like to increase the number of banks through which it distributes to between six and ten. That banks do not want to increase the number of life insurer partners is surprising. It does makes sense from an operational point of view, as it is easier for a bank to sell one life insurer s product and deal with only one life insurer s application process, and it simplifies training needs for infrequent sellers in the bank branch. However, it shortchanges banks both on the underwriting flexibility that having more life insurers on a bank s roster would allow and on exposure to new product development as well. Banks recognize that limiting the number of life insurers with which they work can allow them to provide more choices to their customers via a true partnership with their insurance provider(s). 20
Banks also recognize that a large number of distribution partners can complicate the sales process. For example, completing a life insurance application at the point of sale and addressing the processes needed to complete a life insurance policy sale and place it in force (especially if medical underwriting and attending physician statements are required) can be difficult and complex. The process will remain as such until banks can get standardized application and underwriting forms for all life insurers. Working exclusively with one life insurer, if underwriting is not involved, can produce standardization and operational efficiencies. A trend among Australian life insurers is automation of many of the initial steps in the sales process, such as online application completion via electronic population of answers, and outsourcing teleunderwriting and application completion. Figure 13 Number of partners Number of insurance providers/banks you currently work with and ideal numbers Banks Insurers Current % Distribution Ideal % Distribution Current % Distribution Ideal % Distribution 1 to 2 2 50.0% 1 25.0% 2 50.0% 2 50.0% 3 to 5 2 50.0% 3 75.0% 2 50.0% 1 25.0% 6 to 10 0 0.0% 0 0.0% 0 0.0% 1 25.0% More than 10 0 0.0% 0 0.0% 0 0.0% 0 0.0% Figure 14 Exclusivity and ownership Distribution 21
Banks Selecting Life Insurers Banks asked to select which factors are most important to them when selecting life insurance providers as distribution partners (figure 15) score insurer financial ratings as first. Tied for second place are the following: point-of-sale support, including offering in-branch insurance specialists, training of bank staff, etc.; underwriting turnaround times; company reputation or brand; and product issuance or processing cycle times. One hundred percent of the banks that responded indicated automatic underwriting process as a more important element to consider when choosing an insurer, and 67% of the responding banks indicated similarly for indicative underwriting (underwriting that gives an immediate point-of-sale indication of whether the policy will be priced for a preferred risk, a standard risk, or an impaired risk, or if the application will be declined). Least important to banks is value-added solutions (i.e., profiling of clients, etc.), which is considered only generally important. In stark contrast, and something we will explore more in figure 20, life insurers believe the ability to profile bank clients is very important. Banks deemed the remaining factors covered in this question as somewhat important. Overall, no factor scored below 3.0. Figure 15 Bank factors for selecting life insurer distribution partners Distribution 22
Banks want to work with life insurers that understand the process at the point of sale. An understanding of what ha ppens when a potential insurance customer comes into a bank is gaining in importance as a criterion for life insurer selection, scoring a 4.3. Sixty-seven percent of the respondent banks indicated that simplicity of product design is also a generally important criterion when choosing a life insurer, and scored the question 3.3. This indicates an opportunity for life insurers with excellent streamlined processes and products to be successful entrants into Australia s bancassurance market. Life Insurers Selecting Banks When life insurers were asked for their criteria when selecting bank partners, the highest score of 5.0 was given to number of banking customers (figure 16). This makes sense if the insurer is dealing with only one bank, as working with a bank that has a sizable population swath as clients is important in order to spread risk. Other criteria also scoring 5.0 include: number of bank branches; good relationship with senior management; and insurance is part of branch goals. As witnessed in every country where the Study has been conducted to date, all of the life insurers surveyed consider the criterion good relationship with senior management of the bank to be of the highest importance for successful bancassurance. Among the least important elements for life insurers are having an internet or other direct distribution capabilities and number of ATMs, with 67% of respondent life insurers ranking these with a low score. The factor Internet and other direct distribution capabilities is thought by life insurers to be generally important, with a score of 3.0. Figure 16 Life insurer factors for selecting bank distribution partners Factors in targeting banks Insurer Ranking Scores Number of banking customers 1 5.0 Number of bank branches 1 5.0 Good relationship with senior management 1 5.0 Insurance is part of branch goals 1 5.0 Bank customer demographics 5 4.3 Geographic location 6 4.0 Successful experience in selling insurance 6 4.0 Established insurance back office 6 4.0 Asset size of bank/market capitalization of bank 9 3.0 Internet and other direct distribution capabilities 9 3.0 Number or ATMs 11 1.7 Distribution 23
Preferred Partnerships This Study also explores the services banks expect and life insurers would be willing to provide in strategic (or preferred) partnerships. Eleven were examined (figure 17), covering marketing, profitand risk-sharing motivations, and administrative needs. Australian banks and life insurers, it was found, have fairly well-aligned views on many of the services, but five out of the 11 gaps generated are very or extremely significant. Figure 17 Services for preferred partnerships Distribution A detailed review indicates banks consider placement of in-branch insurance agents as least important to securing a partnership, while life insurers believe it more important, creating an extremely significant perceptual gap of 2.5. This should be an area of substantive discussion, as the gap highlights a real disparity in expectations. Life insurers see create or support profiling of the bank s customer base as important, but banks do not view it as an added benefit, again creating an extremely significant gap of 2.0. Not unlike other Studies, life insurers in Australia want production goals and commitment, while banks are not as inclined, for a very significant gap of 1.3. Setting aside an annual marketing budget to support the bank and conducting quarterly strategy and business plan meetings are also seen by banks and life insurers as fundamental to creating good working relationships. The gaps here (1.0 and 1.2, respectively) are very significant, and should be discussed and resolved. Granting underwriting concessions is the most difficult service for life insurers to accommodate and the one most requested by banks in other countries where Studies have been conducted thus far. In Australia, however, excellent understanding and alignment appears to exist for this element. 24
Awareness and Expansion of Insurance Banks and life insurers agree that unfortunately, bank customers are not generally, or are only partially, aware that insurance is sold by their banks (figure 18). This indicates a need for better, or at least more structured, marketing awareness campaigns. Figure 18 Awareness of life insurance sold through banks Bank customers awareness that insurance is sold through the bank Customer awareness that insurance is sold through the bank Bank Insurer Ranking Scores Ranking Scores GAP 1 2.5 1 2.3 0.2 When banks and life insurers were asked to rate the attractiveness of options when evaluating the need to grow a bank s insurance practice, both agreed that banks should first go about seeking a more direct relationship with life insurers (figure 19). The next best option, both agreed, would be acquiring insurance distribution. The largest gap, a very significant 1.0, surrounds the use of third-party distributors or marketers (TPM). This is consistent with Australia s changing compliance environment. A TPM functions as an intermediary between a life insurer and a bank, and can either enhance communications and increase sales or worsen both, depending on the quality of the TPM and its ability to interface well with banks and life insurers. It also changes product pricing for life insurers, and could impact banks life insurance product revenues. The life insurer usually pays for a TPM s services, but it passes costs along to banks, which could cause bancassurance revenues to take a hit. Figure 19 Options for growing a bank s life insurance practice Distribution 25
Marketing and Sales The seven attributes focused upon in this section assess the importance banks and life insurers place on marketing how to do it, and which institution should be responsible for it. Questions investigated the effectiveness of sales techniques, sales support and the types of lead generation activities that work in banks. Bank-Life Insurer Relationships This segment covers sales and marketing processes, products, and people. It analyzes how bancassurance relationships are structured, the methods and channels banks use to distribute insurance, and the effectiveness and profitability of those methods. By determining how life insurance products are marketed and sold by banks, and the profitability of the various methods used, guideposts can be established for starting, maintaining, and growing a successful bancassurance operation. Figure 20 is in two parts: the table at the bottom of the figure summarizes the scores for the attributes in this category, and the quadrants of the XY graph at the top of the figure show the intersection of each institution s satisfaction and importance scores for each attribute, thereby clearly denoting areas of opportunity for using marketing and sales to optimize the bank-life insurer relationship. Upper right high importance/high satisfaction (the desired location) Bottom right high importance/low satisfaction (areas for improvement) Bottom left low importance/low satisfaction (little attention needed) Upper left low importance/high satisfaction (attributes in this quadrant are those from which resources could be diverted to other, more important attributes) Marketing & Sales Of the seven attributes addressed in this question, four #3, #4, #6, and #7 found banks to have statistically very significant or extremely significant importance-satisfaction gaps (greater than 1.0). Interestingly, life insurers are also significantly or extremely dissatisfied with the same four, and with #1, as well: all have importance-satisfaction gaps of greater than 1.5. Australia is the first bancassurance market surveyed by this Study where life insurers judge themselves more harshly on a number of the elements than do the banks. Usually, the banks are very dissatisfied with the life insurers on all marketing and sales elements, while the life insurers believe they are doing a fine job. (This anomaly may be due to the fact that all of the respondent banks own the insurers.) Attribute #6, integration into the bank s customer database to facilitate sales and avoid redundant entry of data, has both the largest gap between bank satisfaction and importance and the largest bank-life insurer satisfaction gap. Banks perceive this attribute as somewhat important, while life insurers believe it very important. While relative differences exist, both are dissatisfied with the result. Banks have a 2.0 gap between satisfaction and importance, and life insurers, one of 1.5. However, life insurers score themselves 2.8 in satisfaction and banks score themselves 1.5, so there is a smaller, but still very statistically significant, gap of 1.3 between insurer and bank satisfaction levels. 26
Attribute #4, provide marketing support, shows an extremely significant 1.7 importance-satisfaction gap from the bank s perspective. Although banks score this element as more important than do life insurers (4.5 and 3.8, respectively) life insurers believe they are doing a better job and are more satisfied with their progress. Attribute #3, provide effective sales support to bank, shows a very significant gap of 1.0 between bank importance and satisfaction scores. Life insurers give this attribute a 5.0 importance score, but are clearly very dissatisfied with their ability to provide effective sales support, for an extremely significant gap of 2.0. Life insurers give attribute #7, provide a product matrix for a more logical referral process, more importance than do banks. They also view attribute #1, matching insurance product recommendations to client needs, as more important than do banks. While both are dissatisfied with life insurers ability to provide such a matrix (a 1.0 gap between satisfaction and importance scores for banks and a 2.0 gap for life insurers), life insurers are clearly judging themselves more harshly than are banks on both of these attributes. Attribute #5, ability to profile bank clients, is not considered important by banks, and the 0.3 gap between importance and satisfaction to banks is not significant. However, a very significant 1.2 gap exists between banks and life insurer s scores measuring the importance of this element. Life insurers rated this attribute as very important, with a score of 4.0, whereas banks only scored it 2.8, another very significant gap of 1.2. Life insurers were not satisfied with their ability to profile bank clients, leading to an extremely significant importance-satisfaction gap of 1.5. Overall, how best to market insurance products through banks seems to be a major concern for both banks and life insurers. It behooves all life insurers to discuss the issues raised in this section with their bank partners to avoid costly potential pitfalls. This is even more important, considering that all the participants viewed bancassurance as a growing source of revenue. Marketing & Sales 27
Figure 20 Marketing and sales relationship Marketing & Sales Factor Scores in Optimal Relationship Marketing & Sales Factor Scores in Optimal Relationship 5 4 1 2 2 3 1 Level of Satisfaction 3 4 3 1 2 3 4 5 6 4 5 7 5 2 7 6 Marketing & Sales 1 Level of Importance Elements in optimizing relationship by marketing and sales category Matching insurance product recommendations to client needs Provide simplified underwriting for products Bank Insurer Bank vs Insurer Importance Bank vs Insurer Satisfaction Key Importance Satisfaction GAP Key Importance Satisfaction GAP GAP GAP 1 2 4.3 4.0 0.3 1 5.0 3.5 1.5 0.7 0.5 4.5 4.0 0.5 2 4.5 3.8 0.7 0.0 0.2 Provide effective sales support to bank 3 4.5 3.5 1.0 3 5.0 3.0 2.0 0.5 0.5 Provide marketing support (e.g. advertising and training) 4 4.5 2.8 1.7 4 3.8 3.0 0.8 0.7 0.2 Ability to profile bank clients 5 2.8 2.5 0.3 5 4.0 2.5 1.5 1.2 0.0 Integration into the bank's customer database to facilitate sales and avoid redundant entry of data Provide a "product matrix"* for a more logical referral process 6 7 3.5 1.5 2.0 6 4.3 2.8 1.5 0.8 1.3 3.5 2.5 1.0 7 4.0 2.0 2.0 0.5 0.5 28
Distribution Approaches Banks and life insurers were asked to rate the effectiveness of specific approaches to distributing life insurance through banks (figure 21). Both agree that attribute #1, development of a full financial services offering in the bank, including insurance, is essential for a successful program. Such a fully integrated sales approach, however, is probably the most difficult one for banks to achieve. It requires an extremely high degree of point-of-sale integration, a consistent commitment to training, excellent systems for referrals, incentives, goal-setting, processes and procedures, and last but not least, excellent technology support. Given both institutions current interest in database integration of insurance, the approach is still worth aspiring to. Additionally, given the new legislative and compliance environment, there is a need to differentiate clearly between fully featured and simplified products at the point of sale. Banks also believe that direct marketing, particularly direct mail and Internet, are more effective approaches, with scores of 3.8 to 4.0, whereas life insurers find direct selling far less effective, yielding extremely significant perception gaps for each of 1.3. One component that could be driving these results is that different distribution methods are used for different product lines. Some banks sell the simplest life insurance products directly to their customers without a branch-based salesperson, while others sell more complex products and use a branch-based salesperson. The gap in how life insurers and banks view direct distribution could also be a reflection of direct mail costs and who pays for them (the bank or the life insurer), and the expectations of banks and life insurers regarding sales versus leads from these programs. For future Bancassurance Studies on the Australia market, we will split out direct/simplified life insurance products and complex/full advice products into different sections of the survey. This will assist with gaining a deeper understanding of trends impacting the different distribution approaches for these products. These divergent views are not surprising. Banks have brand identity with their clients, so using a call center to sell life insurance is a natural extension of that identity and the relationship, either as an add-on to a question about a banking product or as the primary interaction stemming from a lead from a mail or Internet advertisement. The direct approach might produce a higher sales-to-contact ratio than would, perhaps, an agency outside the bank branch selling face-to-face to bank clients. Direct approaches merit closer inspection and discussion between banks and life insurers, and have the potential to complement future sales of more complex life insurance products. Marketing & Sales 29