By Greg Davies, Senior Analyst/Insurance, Gomez
For nearly two decades, banks have sought to diversify their revenues through the sale of insurance products. Leading primarily with tax-advantaged fixed annuitiesoften distributed though broker-dealer subsidiariesa number of banks have experienced a fair degree of success extending customer relationships though the sale of insurance products. Until very recently, however, few insurance companies have followed suit, despite the more flexible regulatory environment resulting from the passage of the Gramm-Leach-Bliley Act in late 1999. One of the first and most highly publicized was Travelers' 1998 merger with Citigroup, which predated the federal legislation and is widely cited as the catalyst for pushing long-stalled financial services regulatory reform through Congress.
Other early movers include Principal Bank, part of the Principal Financial Group, and State Farm Mutual Insurance. In mid-1998, Principal Bank debuted its online and telephone-based bank under a federally insured thrift charter. In November 1998 State Farm followed suit and began offering banking services, also under a thrift charter.
Unlike Travelers/Citigroup, which boasts an expansive branch and ATM network, both State Farm and Principal's retail banking strategies require consumers to interact with their banks almost exclusively via the online and call-center channels. Although agents are available for assistance on account applications and product inquiries, they are not able to process deposits.
Following the lead of State Farm and Principal, two high-profile insurersAllstate and MetLiferecently unveiled retail online banking offerings. These firms intend to use their Web sites, call centers and agents to target current and prospective policyholders for deposit products and services.
Allstate, the nation's second-largest auto insurer, received a limited thrift charter in 1998 and was granted full thrift charter in the middle of this year. The firm has cross-licensed approximately 4,500 of its agents and is relying on an undisclosed provider to supply front-end online banking technology.
In February 2001, MetLife became the first insurance company under the Gramm-Leach-Bliley Act to receive approval for the purchase of a federally chartered bank, Grand Bank of Kingston, NJ.
By the end of 2001, consumers seeking a single source for their banking and insurance needs will find options from a number of the country's top insurers. Yet aside from Travelers/Citi, the success of each of these insurers' retail bank offerings is dependent upon consumers' acceptance of a branchless banking experiencewhich in recent history has proven problematic, even for similarly branded Web-only banks backed by brick-and-mortar financial institutions.
Ultimately, these initiatives beg the question: Are we witnessing Part II in the saga of Internet-only banks (albeit this time with the assistance of well-intentioned agents), or will insurers be able to leverage their considerable brand identities to build significant deposit bases? Here's the early Gomez take:
Insurers bank on a strong brand. Unlike BankOne's First USA unit, which reportedly spent upwards of $100 million building a brand for Wingspan Bank, and other branchless initiatives from established brick-and-mortar banks, Allstate, State Farm, MetLife and Principal intend to leverage their already strong brand identities and expansive agent networks.
Nevertheless, all face a significant challenge in transforming consumer perception to one including both insurance and deposit products. To succeed, each must aggressively promote its banking capabilities through statement mailers, marketing campaigns and in-agency promotions. Citi's decision to retain the separate brand identities of its banking and insurance operations, and its push to retain the Citi brand for the corporate identity, is indicative of the challenges these firms face in building a brand inclusive of banking.
Lack of a transaction-capable physical presence represents a glaring weakness. Allstate, State Farm, and MetLife agents possess strong relationships with their customers. Each company will rely on agents to explain its banking products and assist in account opening. Moreover, a physical presence builds trust and will likely assist in increasing sales opportunities through foot traffic.
However, none of the four companies' agents can currently accept deposits. Thus, bank customers will need to rely on the same deposit-mailing scenarios as they would at any other Internet-only operation.
Limited integration represents a barrier to adoption. Currently, State Farm banking customers must log-in separately to see a summary of their deposit accounts and their insurance policies. Additionally, State Farm requires consumers transitioning from banking-related to insurance-related areas of the public site to click through a "warning" screen containing a legal disclaimer about the risks of non-FDIC-insured products. This may end up undermining, rather than increasing, consumer confidence.
Principal Bank, meanwhile, is one step ahead of State Farm Bank in offering a combined online summary of assets. However, this view is not available on the bank siteconsumers must register for account access on the parent principal.com siteand the relationship summary does not provide access to deposit account transactions (only balances are available at this time).
Moreover, neither Principal nor State Farm offers easy access to information on related products and services. For effective cross-promotion insurers must capitalize on the opportunity to present consumers with a unified summary of their relationships, and ensure that consumers' interests in learning about complementary products and services are not stymied by poor information architecture.
Given the low transaction frequency of insurance products insurers will be faced with limited opportunities to cross-market their banking products. Moreover, as the early indications suggest from State Farm, with approximately 85 percent of its banking customers also holding insurance policies, expanding beyond its core policyholder base for deposit accounts may require an even more considerable marketing effort. However, cross-promoting banking products does offer insurers considerable opportunities to increase their share of the customer's wallet, and retain assets when a loss is recognized.
Bottom line: it is unclear whether insurers' brand identities and agent sales forces will ultimately give them an edge in selling bank products.
Greg Davies is the lead analyst covering the online insurance industry for Gomez (www.gomez.com), the Internet quality measurement firm. He can be reached at [email protected]