The Life Insurance Marketing and Research Association (LIMRA) says almost a third of U.S. households don’t carry life insurance, and many more don’t carry enough coverage. Part of the reason may be outreach: Even people who know they need more life insurance say they haven’t bought it because they haven’t been approached by a financial professional.
More than half of responding households said in 2016 that they would be more likely to buy if advised by trusted financial professionals, which represents an opportunity for banks and credit unions. Profit margins on bank sales of life insurance tend to be strong, and consumers tend to trust their bankers. “It’s an easy sell when you are at the bank, in front of an adviser, and already in the mindset of your financial future,” says JC Matthews, co-founder of Simply Insurance (simplyinsurance.co), an online insurance service.
Here’s what you need to know.
More Products Attract More Customers
One of the ways banks could boost their bottom line by offering life insurance is to offer a wider array of products. Most banks focus only on one life insurance product, Matthews says, which can limit options when it comes to reaching different customers at different stages in their lives.
“The challenge will always be doing right by the customer,” Matthews says. If banks aren’t accustomed to adding life insurance or treat it as an afterthought or up-sell, it might not be the best option for customers. Including life insurance as an important part of their business strategy will help banks prioritize it and improve services around it.
Expanding Channels Can Create Opportunity
Life insurance sales generally provide a good profit margin for banks, and branching out into different sales channels could help banks capitalize even further. A 2007 LIMRA report said the typical bank could more than double customer penetration by selling life insurance through direct response, platform bankers, financial consultants and advanced agents, instead of just focusing on one or two channels.
The slow growth of life insurance sales through banks may stem from the Glass-Steagall Act. Before it was repealed in 1999, it prohibited relationships between banks and insurance companies for the purpose of selling insurance to bank customers. While growth in sales has been steady since then, there is room for improvement.
Institutions Express Optimism
Because growth has been slow, there’s lots of ground to make up. LIMRA’s 2016 Bank and Credit Union Life Insurance Study found that more than 60 percent of institutions believe that consumers will look more to banks and credit unions for insurance. Millennials in particular represent a strong potential market, as they are ready to buy life insurance and don’t have preconceived ideas about where to get it.
“Selling life insurance is an excellent way for a bank to grow its revenue,” says Keith Friedman, CEO of FBO Strategies (fbostrategies.com), an insurance and estate planning firm. Banks provide a valuable service to customers they have a trusted relationship with, and help provide them with increased financial stability in the event something terrible happens. “This practice helps a bank grow because not only does it increase revenue in the first year of a contract but the bank will be paid on renewals,” he says.