Lessons from Insurance | By Kenneth A. Shapiro
Over the last 20 years there have been similar, marked changes in banking and insurance. Two decades ago, building branch offices was the epitome of banking convenience. Today, it’s a free app for a smartphone.
The story of the life insurance business isn’t much different. Twenty years ago, there were only a couple of choices in life insurance policies, which were arguably complex and confusing. Qualifying was complicated, applications were cumbersome and processing was lengthy.
It was about then that some banks became interested in getting in the insurance business. Most gravitated to auto and homeowner-type coverages, since these were relatively straightforward, quick transactions, while life insurance sales took longer and were more complex.
There’s a natural synergy between banking and life insurance. They both deal with financial products and services, are highly regulated, operate with conservative corporate cultures, and are charged with a fiduciary responsibility to their customers.
Even so, some bankers think that life insurance is too different and too far removed from banking, too much of a problem or could take the focus away from more pressing issues. Admittedly, such concerns were appropriate in the past.
While these are valid objections, it’s worthwhile to understand the dramatic changes that have occurred in the life insurance industry over the past decade – changes that have brought it closer to banking:
Technological advances. Not so many years ago, the life insurance industry was anything but technologically integrated. Company computer systems were proprietary, so applications, policies and other paperwork were overnighted back and forth. It was a slow, stodgy and inefficient process. Today that’s history. Processing is close to 100 percent electronic, as is even some underwriting.
Medical underwriting advances. Perhaps the most dramatic and far-reaching change is in medical underwriting, which has been the benefactor of vastly improved medical care and medications. Applicants who would have been rejected or offered higher rates in times past, enjoy standard rates today, including some with a history of cancer, diabetes, heart disease, and so forth.
Product development advances. The life insurance industry’s history is something less than innovative when it came to product development (perhaps, not unlike banking). But spurred by competition, the life companies have taken huge steps forward by focusing on consumer needs (very much like banking). For example, the new “hybrid” life and long-term care products are powering sales because they provide a death benefit and long-term care in one policy.
Equally important, technology is shaping the consumer’s buying behavior. Few banking customers want to stand in line and wait for a teller or even to go a bank when they can use a sophisticated, full-service 24-hour ATM or, increasingly, do their banking using a smartphone or a tablet.
In the same way, today’s life insurance customers are often surprised to discover that purchasing a policy is a surprisingly quick, unobtrusive and painless experience. For some policies, there are only three or four medical questions or, depending on the policy, none at all. And some policies are issued electronically either immediately or in a few days.
More similar than different
In years past, while bank forays into life insurance sales differed in approach, with some using either in-house personnel and others outsourcing the responsibility, the results were often lackluster, possibly stemming from cultural conflicts, inadequate commitment of resources, and more pressing matters.
Today, banks have abandoned their traditional passive attitude and have adopted a sales culture not that much different from that of the life insurance industry. In the same way, the life insurance business now recognizes the need to retain customers by building relationships, something that’s second nature to bankers.
Banks long counted on the interest rate spread on their lending for much of their income. But when interest rates dropped to historic lows, bankers turned to fee income as a critical source of revenue, particularly as operating costs escalated.
The life insurance industry, on the other hand, was built on agents being paid a commission (or, if you will, a fee) for making a sale. Today the sales culture of these two significant industries is roughly the same.
Similarly, both are concerned with helping their customers preserve and grow their wealth, and they do it in highly regulated environments. Although there are instances of both getting off the track, their customers can have confidence in the safety of their investments.
Just as banks have taken momentous steps to make themselves much more user-friendly, the life insurance industry has moved in the same direction by making their operations and insurance policies much more attractive to consumers.
Since banking and life insurance are closer together than they’ve ever been, it’s prudent for bankers to examine how to leverage that synergy to work for their customers and their businesses.
In summary, the alignment and compatibility of banking and life insurance is striking: life insurance is an asset that does not take money out of a bank and helps protect other assets. On top of that, they share similar attitudes toward enhancing their customers’ financial well-being. Neither is a stranger to the demands of operating under rigorous regulatory requirements.
Over time, both bankers and life insurance professionals have learned that the most successful sale is the one that creates a relationship with customers by identifying and meeting their needs.
Banks considering moving into the life insurance arena should first explore the possible benefits of including life insurance in a bank’s product mix. Next, they should determine what needs to take place if a life insurance component is to fit successfully into a bank’s customer environment and the ways in which it can contribute to enhancing the customer experience.■