Banks face a digital shift, pressures on deposits and competition for customer loyalty, so they must constantly fine-tune their operations, embracing new revenue streams and avenues of customer engagement.
Insurance may seem like a natural fit for banks large and small. Consumers and commercial enterprises have trust in their primary financial institutions. Plus, insurance becomes a critical component of our financial lives as we get older, start families, and want to protect ourselves, our loved ones and all that we’ve built through the years.
Franklin Madison Vice President of Corporate Risk Management Vanessa Stanfield said several factors may be in play that could cause a financial institution to hesitate about marketing insurance to end customers. Simply put, the banks may be focused on what they perceive to be a set of onerous regulatory burdens — and they may even harbor concerns about the lack of operational expertise needed to craft those marketing campaigns in the first place.
“Banks play an important role in the overall financial health of their customers, and offering insurance is another way for them to connect in a meaningful way,” Stanfield said.
Although the insurance industry is a regulated field, there’s no real barrier to entry for banks.
“There isn’t a huge regulatory burden,” Stanfield said.
The Gramm-Leach-Bliley Act allows commercial banks to diversify into other areas beyond deposits and credit, including insurance, offering these products through subsidiaries. Rules governing insurance-focused efforts have not changed much in 20 years and may not change much in the future, Stanfield said.
“These rules are relatively easy to follow from the banks’ perspective,” she said, where the laws in place mandate that, among other things, consumer-facing disclosures need to be clear and concise.
Licensing need not be a daunting hurdle, either, as the National Insurance Producer Registry has uniform licensing applications for state licenses in every state with one application. In addition, the National Association of Insurance Commissioners Producer Licensing Model Act has been adopted by 45 states, which makes it relatively easy for banks to manage licensing compliance, she said.
Stanfield also noted that, contrary to some additional misconceptions, there’s no balance sheet risk tied to the banks’ sale of insurance. It’s the insurance carriers who underwrite the products and carry all the risk — so there’s the advantage of generating income without exposing the bank itself to any additional hazard.
As to the operational “lift” required to ensure banks comply with mandates, Stanfield said that embracing a partnership model — outsourcing those functions to providers such as Franklin Madison — can also smooth go-to-market strategies. There’s a natural progression in using the data and analytics tied to the platform model so that banks can forge marketing campaigns, and even personalized insurance products, that resonate on a customer-by-customer basis.
“We’ve got the marketing experts, we’ve got the compliance experts, and we’re able to put in front of the decision-maker a robust proposal, showing end to end what you can expect, what your customers can expect … and it’s a pretty compelling proposition,” she said.
In addition, Franklin Madison’s sales team will calculate the revenue stream that can be garnered by the bank over the years based on historical response rates and conversion rates.
Looking ahead, Stanfield said the regulatory environment has been stable for banks as they mull bringing insurance to their end customers. That stability is likely to be in place for a while.
“We’re not seeing anything that would impact that environment,” she said, and the time is right to consider how to execute those campaigns sooner rather than later, positively impacting the bank and its customers.
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