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
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 banks branch network allows the
Dorlisa Flur is a principal and Lisa Lowie is a consultant in McKinseys Atlanta ofice; Darren
Huston is a consultant in the Pacific Northwest ofice. Copyright 1997 McKinsey &
Company. All rights reserved.

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THE McKINSEY QUARTERLY 1997 NUMBER 3

face-to-face contact that is

so important in the sale of
life insurance. In France, for
example, over half of all life
insurance sales are now made
through banks. In the rest
of Europe, the proportions
range from just 5 percent
in Sweden to 33 percent in
Spain (Exhibit 1).

Exhibit 1

Bank penetration into life insurance market, 1994

Bank share of written premiums

Market size

Percent

$ billion

76

France
55%

Spain
33

10

Italy
20

18

Netherlands
18

76

United Kingdom
15

44

Germany
7

20

Sweden
5

Though a mere 1 percent of

United States
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 $3575,000 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 insurance agent, for example, might sell only one policy a week; a less efective
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 premiums thereater. 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

THE McKINSEY QUARTERLY 1997 NUMBER 3

127

235

BANCASSURANCE

Exhibit 2

Conversion rates of leads to sales

Exhibit 3

Projections for US bancassurance

Appointments and sales per 100 leads

Average Excellent
insurance insurance
agent
agent

18.5

Estimated life market after-tax profits, $ billion

Bank

Bancassurance

Leads

100
90

8.5

80

7.5

70

6.6
6.0

60

5.2

Appointments

50

4.6

40
30

Sales

20

4.2

10
0

1%
<1

11%
1

25% Yield
per
4 Sales
week

0.08

1995*

0.2

1996

0.5
1997

1.2

0.9
1998

1999

2.0
2000

2010

* Actual figures; 19962010 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 Ofice
of the Comptroller of the Currency (OCC) ruling authorized national banks
Exhibit 4

Steps to a bancassurance start-up

Learn

Develop
Build
the product
distribution*
Develop
actuarial
assumptions
and product
specifications

Select partners
(if any) and
determine
ownership
structure and
responsibilities

Generate
sales lead
Develop
or modify
mechanism for
transforming
bank
information
into sales leads

Create product
illustrations,
Install
needs analyses, infrastructure
Solicit leads
and prospectus (technology and through
staff) if needed multiple means
Obtain
(branch referral,
regulatory
Train sales
mail/phone,
approval
managers,
cold calls)
agents, and
bank staff
* One-time step

128

Monitor
ramp-up

Sell the
product
Develop or
modify sales
processes
to maximize
close rate
Sell products
through
appropriate
channels
(direct via
phone, mail,
or Internet;
face-to-face
in branch;
face-to-face
at home)

THE McKINSEY QUARTERLY 1997 NUMBER 3

Process
the policy
Underwrite
prospective
sales through
banks or
insurers
underwriting
department
Process sales
through back
office(s) of
bank and
bancassurance
partners

Administer
the policy

Review
service policy
(eg, annual
updates, policy
loans, change
in beneficiary,
toll-free
number)
Manage assets
to maximize
returns
Monitor
feedback
on policy
performance

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 recognizing that many details must still be worked out.
In their natural roles and with their current skills, neither banks nor life insurance companies could efectively 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

Natural role

Learn

Develop
Build
the product
distribution

Generate
sales lead

Sell the
product

Possible role extension

Process Administer
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
oten lack local and regional name recognition and reputation; and they
seldom possess access to or experience with the middle market.
These skill diferences suggest several forms of partnership between banks
and life insurers. A bank can either be an arms-length provider of warm
leads to a life insurer, or take control of bancassurance by moving into distribution, 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 arms-length
provider of product and underwriting expertise to a bank. Alternatively,

THE McKINSEY QUARTERLY 1997 NUMBER 3

129

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
Leveraged life
distribution
Multiple banks
Arms-length provide
(warm leads/ prospects
reputation only)
Life salesforce
sells product to
prospects
Bank
Bank/life joint
venture
Bank and life
insurer create
Leader low-cost agency
Split agency/
underwriting
profits

Broker-driven
sales
Broker develops
and owns
proprietary model
Brings multiple
banks and life
insurers together
Leveraged bank
distribution
Bank leverages
own salesforce/
distribution
Sells multiple
life products

Combining these roles produces a

number of models for bancassurance
delivery. Below, we describe the three
most promising:

Leveraged life distribution

Under this model, the life insurance
company takes the lead in the partnership, while several banks provide
access to middle-market leads.

The main protagonist under this scenario would be a large life company
with a range of efective 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 insuficient 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.
Leader

Arms-length
(product only)
Life insurer

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

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THE McKINSEY QUARTERLY 1997 NUMBER 3

BANCASSURANCE

Exhibit 7

Early movers in US bancassurance partnerships

Partnership
model

Banks

Life insurers

Leveraged
life
distribution

Glendale
Federal
Savings

Metropolitan
Life

MetLife agents targeting middle-market

customers sell their full portfolio of individual
life products from leased space in the lobby of
Glendale branches, with roughly 1 agent for
every 2 branches

Norwest
Corp and
others

ITT Hartford

ITT Hartford created separate sales unit to sell

individual life products through banks.
Developed tailored variable life products to
appeal to bank customers. Works with private
banking and trust departments to target affluent
customers

KeyCorp

John Hancock,
Travelers,
Progressive,
Nationwide,
ITT Hartford,
and others

Large and expanding KeyCorp salesforce

distributes life products from a variety of insurers
as well as cross-selling bank products. Bank uses
customer information to identify the skills agents
need in particular regions

Leveraged
bank
distribution

Bank/life
joint
venture

Other
Description
players

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 Colony,
AIG, and others

First Union currently offers term life to its middlemarket customers via a toll-free telephone
number, direct mailings, and the Internet. In
addition, a salesforce of insurance specialists sells
a full range of life products

NationsBank

Various

NationsBank currently offers term life to its

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

Banc One

Succession
Planning
International
(subsidiary of
Manulife)

450 Succession agents work part time in selected

Banc One branches to sell life policies to affluent
customers selected from the banks corporate
lending, trust, and private banking information.
Banc One owns a minority share in Succession

Charter One

JeffersonPilot

Charter One established a dedicated insurance

agency (consisting of sales reps and marketing
assistants) to offer J-P universal life products (and
eventually term and whole life products)

Direct
Quote

own customer base while playing of 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 efectively. It may
also be able to extract some rents from the life insurers.
NationsBanks and First Unions 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 welldeveloped customer database together with a large life insurer with strong

THE McKINSEY QUARTERLY 1997 NUMBER 3

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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 distribution, 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 Jeferson-Pilot.

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