Banks pin hopes on insurance
By ROB STOCK - Sunday Star Times
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Banks are muscling-up their life insurance sales efforts having discovered it is an unrecognised jewel in their financial crowns.
The end of the boom in mortgage credit is seeing the big banks focus on insurance to drive profits, to the point where it could soon be a major area of competition.
"When the mortgage market was red hot, that was the singular focus," said Westpac's head of insurance, Kevin Crowley. But now insurance is offering banks a chance to reap better returns from existing branches and sales staff.
Meanwhile, in a move which could herald a market shake-up, Kiwibank is building its Kiwi Insurance business to lure customers from rivals (see table).
A look at the profits banks are making from insurance shows why they are all so keen. Westpac Life NZ Limited made an after-tax profit of $31.2 million on $85.4m of premiums collected, while Commonwealth Bank of Australia revealed in an August broker presentation that its New Zealand insurance business produced $118m of the total $536m after-tax profits of all its New Zealand ventures (including ASB and Sovereign). And that means a harder sell on life insurance and other personal cover, such as disability cover, trauma and redundancy insurance, which banks generally sell as "bolt ons" to life policies.
Crowley estimated banks have around 20% of the market, but he expects that to rise as the days of banks blowing hot and cold on their life companies are now history. That's a good thing, he said, as it offers the best chance of reducing the widely recognised issue of underinsurance.
"The bank channels are the new channels," he said. "The days have gone of someone knocking on your door to talk to you about insurance."
Many insurance advisers accuse banks of self-interest in focusing on selling insurance to cover mortgages rather than recommending comprehensive cover.
It's an impression that's supported by bank policy "bolt-ons" of redundancy insurance and limited temporary disability cover, which increase premiums. The banks acknowledge there's some truth in the charge, though say it is driven by customers. "Banks don't give advice to customers. They provide information and customers make their choice about what they do," said Kathy Stirrat from ANZ National Bank.
"Generally speaking, when people have a debt, and a fairly large debt at that, they tend to focus on that debt," said ASB's Ian Park, though both he and Stirrat said there was a trend for customers to take wider insurance.
Crowley said many customers with debt have limited means to pay for insurance. "Not everybody works in Auckland's CBD earning $100,000. For many customers, it is a purchase they have never made before and some are more than happy to just cover the mortgage as that is all they can afford."
Pricing differences between the banks are not huge, though there's little ability for bank customers to compare premiums. Only BNZ and Kiwibank provide access to online premium calculators.
Premiums rise rapidly once bolt-ons are added. For example, adding trauma cover of 50% nearly doubles the quote for a 30-year-old ANZ or National Bank customer. At age 50, it's closer to a trebling.
The buzz among brokers is that banks' premiums are unusually high, but that appears unfounded. A Sovereign policy sold by an independent adviser is no more costly than if bought at the bank. Because the bank policies are fully underwritten – customers are asked detailed medical questions – they are cheaper than term life policies sold direct by the likes of the AA.
Banks do not exclusively rely on branch sales, and have insurance teams as well. ASB customers, for example, can speak to insurance specialists by videophone at branches, or book one to see them at a branch or at home. ANZ and National Bank also have advisers with access to non-ING insurance products for people whose situations are more complex.
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Monday, October 18, 2010
Banks pin hopes on insurance
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