Bank life insurance sales growth continues to far exceed the pace of sales in the general industry.

New life insurance premiums at banks rose 59% in the third quarter of last year from a year earlier, the latest quarter for which data is available, according to the Kehrer-Limra bank life sales report, released last week. It was the second straight quarter that banks outperformed on life insurance sales. Bank life insurance sales rose 32% in the first nine months of 2009, compared with a year earlier, while total individual life sales across the U.S. were flat in the third quarter and fell 11% during the first nine months of last year.

Scott Stathis, a managing director at Kehrer-Limra, a financial services and research company, said the firm has seen a sea change over the past two quarters. It was during the firm's bank life insurance sales study group, which took place in New Orleans in early December, that it became clear that the sale of life insurance through banks was gaining traction.

"At our spring study group, the go-to product was still fixed annuities," Stathis said in a phone interview Wednesday. "There weren't quite the signs of life yet that we saw in the second and third quarter of 2009, when things started to take off for bank life insurance sales."

Several factors are behind banks' ascendancy, he said. In the fall, the Dow Jones industrial average began to improve, which sent the rates on fixed annuities closer to the rates on certificates of deposit.

On the flip side, the sale of variable annuities and the Dow Jones average are typically correlated, Stathis said, but last year was different.

Insurance companies burned by the financial meltdown became risk averse, raising the prices on variable annuities while watering down the benefits, he said. This made variable annuities harder for banks to sell.

In addition, bank-brokerage clients are by nature more conservative, Stathis said, so bank sales of variable annuities tend to lag behind wire house and independent broker-dealer sales. In fact, according to Kehrer-Limra, in the third quarter of last year banks sold only 40% as much variable premiums as they had in the third quarter of 2008.

All this led banks to sell more life insurance.

"Variable annuity sales are going up slowly, but not significantly enough to make up for the lack of sales in fixed annuities," Stathis said. "So everyone was looking for the next go-to product, which slowly but surely has become life insurance."

Life insurance companies are designing their products to be much simpler for bank representatives to sell. One improvement has been that applications have become shorter, and the application process has been brought online. The processing of applications has also become more streamlined, so clients can get responses very quickly, almost like a CD or a money market fund.

But not all insurance companies sell life insurance through banks. New York Life Insurance Co., for example, only sells its life insurance products through its own agents, preferring that they have no competing distribution channel on life insurance.

Still, other insurance companies have slashed their sales forces, opening the door for the new trend of selling life insurance through banks.

Life insurance revenue in the first nine months of last year accounted for almost 6% of investment revenue, according to the Kehrer-Limra report. "Until recently, bank life sales were showing no signs of life," said Janet Cappelletti, Kehrer-Limra's associate research director.

This story has been reprinted with permission from American Banker.

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