Insurance companies in the US, Canada and the UK face some of the same technology challenges when it comes tosuccessfully marketing insurance through banks. But regulatory changes in the US, including the Gramm-Leach-Bliley Act and the legalization of electronic signatures, may mean getting insured through a bank will become a more common transaction.
More than a year after the separation of US financial service industries ended, cross selling of insurance, brokerage and banking products should be in full swing. But on closer look, many US-based financial organizations are still struggling with the concept of selling products from previously "foreign" segments of financial services.
The practice of banks selling insurance products, or bancassurance, is one area that has shown some movement towards an integrated banking/insurance operation. However, it may be years before bancassurance gains significant traction in the United States.
Consider this: The separation of financial markets ended more than 20 years ago in the UK, and though many banks sell insurance, most are still operating solely on paper and are not using data mining technology to effectively cross-sell, says Maria Thompson, managing principal, Thompson Management Solutions, Inc. (Brimfield, MA), a financial services consulting firm. "England was in the same situation 20 years ago as the US is today," says Thompson. "Unfortunately, the UK banks have not seemed to do much with technology. Everything is on paper. If they sell an insurance product, there is a laborious underwriting process. There doesn't seem to be much technology."
At Glasgow-based Abbey National Group, parent company of both Abbey National Financial & Investment Services (ANFIS, British Sterling 1.5 billion in new insurance business in 2000) and Glasgow Mutual Assurance (British Sterling 4.5 billion in new insurance business in 2000), the company is selling life insurance in nearly 700 bank branches with ANFIS. Glasgow Mutual, which Abbey National acquired in 1992 and is now part of ANFIS, sells insurance through independent financial advisors (IFAs).
The acquisition of Scottish Mutual significantly sped up ANFIS' bancassurance operations. "We use the systems of Scottish Mutual for insurance operations," says Paul Chong, director of program implementation, ANFIS. "We have a common system, a common platform and a shared back office for Scottish Mutual and for the bancassurance operations." As a result, "because we have been able to share the IT costs between Abbey and Scottish Mutual, we have been able to competitively price our insurance products," adds Chong.
There are four core administration systems for the insurance operations, says Chong. "SOLCORP's Ingenium is the main administrative system," he adds. "We installed Ingenium about three years ago because we needed greater scalability," and ANFIS wanted to reduce support costs associated with older legacy systems.
In fact, says John Cochrane, vice president of European consulting at SOLCORP (Mississauga, Ontario), "very few banks are building policy administration systems. The building is risky, costly and takes a long time, not to mention the fact that insurance is not their specialty-banking is," he says. "Generally, banks will purchase a package solution, especially if a bank is entering the insurance market in a green-field manner." At ANFIS, Ingenium allows the financial services organization to roll out new products quickly to both Abbey National's bancassurance operations and through Scottish Mutual's IFAs, adds Cochrane.
STILL PUSHING PAPER
However, while the back-office administrative systems are running on the latest technology, the front-end sales process is still all paper-based, notes Chong. Part of the reason ANFIS still runs a predominantly paper-based sales operation is because of some regulations. "In terms of presale activity, it is done off the Abbey National Bank system," such as getting the customer's name and address, says Chong. "When the customer decides they want to buy an insurance product, they fill out an application. We can't open up the insurance systems to the point-of-sale, because of certain regulations."
In fact, says consultant Thompson, US banking institutions and insurance companies already have a leg up when it comes to technology. "The US is behind the United Kingdom on transformation, but is ahead on technology; the US has a good direct-response trade," through advanced call centers and through leads generated by mailings, adds Thompson. "UK bancassurance operations have to let the customer come to them, rather than target market their products. They are not allowed to do data mining," because of government regulations.
THE DIRECT EVOLUTION
Across the pond in the US, direct mailing and call centers are the current favorite methods of bancassurance distribution for insurance carriers, while the Internet is quickly becoming the preferred future distribution channel. At Nationwide Insurance ($111 billion in assets under management, Columbus, OH), all bancassurance development efforts are being concentrated on creating an Internet distribution channel for banks. Nationwide distributes insurance through 250 bank partners, including two-thirds of the nation's 50 largest banks. Currently, Na-tionwide is focusing on simple fixed insurance products for bancassurance.
"We have made a large effort in developing our Web offering," says Bernadette Smith, director of individual market Web development, Nationwide, of the Web site that has been in development for the past four years and servicing banks for the past two. Nationwide's bancassurance Web site has functionality that includes a consumer offering for bank customers who are looking for insurance, product information for bank representatives to assist them in selling the insurance products, sales illustration software, access to commission statements, client information, quarterly statements and daily contract values-since most products sold are variable annuity products. "In the banks there is a lot of paper," says Smith. "With the Web, we are trying to get all of the literature and sales presentations out there electronically. Many bank branches do not have Internet access yet, but that is rapidly changing. I can't think of any of our bank partners that are not using the site."
As the number of banking partners grows, scalability is a concern, says Smith. "We have the latest hardware and we are continually looking at expanding capacity," she says. "As the volume grows, we have to be ready." Nationwide is running a scalable Unix-based system for its Web, database and application servers. The best part about having everything on a Web site, says Smith, is "maintenance and product updates are very easy, as there is no software located in the bank branches."
In Canada, financial services companies are still faced with Glass-Steagall-like laws that keep them separate, but insurance companies can own banks and vice versa. "Canadian banks are pushing their way into the insurance market by buying insurance companies," says Toronto-based Neil Parkinson, partner in New York-based KPMG's Insurance Practice. For instance, notes Parkinson, Royal Bank of Canada (RBC, Toronto) last summer acquired Greenville, SC-based Liberty Life Insurance Co. to gain a foothold in the US insurance market and to cross-sell a wider range of financial products to all of its US customers, says a spokesperson from RBC. RBC already had US operations consisting of banks and asset management companies at the time of the acquisition. Earlier last year RBC also acquired the Canadian insurance operations of Prudential of America Life Insurance Co., and in April 1998 acquired Mutual of Omaha Insurance Co.'s Canadian life and health operations.
However, in Canada, RBC must market its products "through separate insurance subsidiaries because there have been impediments to banks marketing insurance products through the branch networks," adds Parkinson. "Some banks market via call centers, but so far there hasn't been a concerted effort by the banks in the e-commerce area of bancassurance. In Canada, because of the fact banks have to have separate insurance operations, they don't have the cross-over systems" necessary to use consumer information for data mining. "They have separate stand-alone systems that don't talk to each other and they don't have cost efficiency or economy of scale," continues Parkinson. "As a result the market is not that attractive and the banks that are selling insurance are not doing anything unique because they can't leverage their customer base."
Much of the same is true in the US, but with the end of Glass-Steagall, banks will be able to share consumer information with insurance subsidiaries and with insurer partners, although some restrictions apply to both models. At Pittsburgh-based Mellon Financial Corp. ($488 billion in assets under management), the company has significant insurance subsidiaries, including Mellon Life Insurance Co., Mellon Clare O'Dell and the Mellon Insurance Agency.
COVERING ALL ANGLES
The Mellon Insurance Agency markets products for retail distribution through Mellon Bank branches. Besides using the Internet and direct mail to attract customers, Mellon Insurance Agency has 400 employees, many of whom are located in bank branches, and have NASD Series 6 and 7 qualifications, and knowledge of fixed and variable annuities and some long-term care and life insurance products. The licensed financial advisors sell life and annuity products from numerous insurance carriers.
However, Mellon's bank-oriented systems do not work well with insurance companies' systems, says Ken Schweiger, managing director of Mellon Insurance Group. "Most insurance companies are set up to handle administration for a traditional agency system," he says. "Our systems do not match up with that. For instance, many insurance companies will only pay the agency a commission and will not pay the individual directly. Carriers give Mellon the commission, and we had to set up an internal system that tracks and administers the business," adds Schweiger.
And since most insurance companies are still working with paper-based applications, Mellon has an extensive paper archive. "We are processing over 20,000 applications for fixed annuities a year," says Schweiger. "That means there are a lot of filing cabinets and FedEx envelopes. It would be better if the application were electronic, so now we are scanning and storing a lot of data."
Schweiger notes there are many advantages to moving to an electronic process. For example, "on the life side, systems can link with MIB Medical Information Bureau directly and do electronic credit reporting." But since the electronic signature bill was only passed last year, "many insurance companies are not at the all-electronic level yet," says Schweiger. "The real driver will be when the carriers are ready to communicate electronically."
Maria Thompson agrees, especially because electronic communication will most likely be through the Web. "Many banks are already Web-enabled," she says. "To put the insurance application on the Web, the burden is on the insurance company to get the process Web-enabled."
Since most carriers are not ready to put all of the application process on the Web, many are turning to a remote form of person-to-person communication-telemarketing. At The Hartford ($167.1 billion in assets, Hartford), most bancassurance programs are direct mail, through a bank's monthly statement directing the consumer to either access an Internet site or contact a call center. "The call center technology is fairly standard," says Dennis Bruno, assistant vice president, personal lines technology. "We are a heavy user of telephony, an AT&T New York feature set that comes with their product offering. The desktop technology in our call centers is home-grown. For initial call routing, we use the AT&T Mega800 product line. There are several advanced features for our larger call centers. TransferConnect is a product that moves calls from different call centers. We do load balancing to minimize the amount of wait time. We have virtual routing and call-center routing," adds Bruno.
In fact, the future of bancassurance, says Mike Concannon, senior vice president, personal lines, The Hartford, will be through an e-agency. "The more likely evolution will be better ways to have the bank rep connect, say, the mortgage customer, to insurance reps, who sell homeowners insurance," says Concannon. "Our current bank partners are inquiring about creating an agency model so the banks can give the customer choice." Some of The Hartford's bank partners include Ford Motor Credit and Sears' credit card operations.
The e-agency will prevail over the traditional bank branch model, comments Concannon. "The bank branch is not a natural psychological connection for a customer," he says. "Also, when is the last time you were in a bank branch? People are going to brick-and-mortar banks less and less."
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio