Vertical Integration of Insurance Products: Improving the Customer Experience

What the impact of rising prices, overall inflation and the increase in interest rates will prove to be as the economy inches forward certainly is unclear. But I have personally not seen any projections or opinions that, in the near term at least, it is likely to be positive for financial markets or community banks.

As we have previously outlined in this space, other segments of the financial services sector, and yes, including credit unions, have been integrating insurance products to attract new customers with added services, to keep existing customers from moving to other providers to take advantage of additional services and to enhance the overall customer experience. And as we look to the changing economy, this vertical integration, using insurance products, is also realizing significant levels of recurring, non- interest revenue.

While it has been our opinion for decades, after many fits and starts, that bank customers, at least for the foreseeable future, do not see their bank as an option for buying insurance. That being said-using insurance products to support core bank business objectives is becoming more and more important as a part of an emerging financial services business model.

Some key insurance and related areas currently in place or in some phase of introduction:

Lending Homeowners insurance is a required coverage. Why not make the offering of homeowners insurance through multiple carriers an integral part of the lending process and insurance renewal? As a part of the process, auto insurance is bundled with homeowners and umbrella coverages are offered. This is a mature product platform currently achieving high levels of success.

Individual term life insurance that is truly designed for loans. The customer is able to buy the exact amount of insurance to pay off the loan- not more and not less as is currently the case. The product target is mortgage lending and SBA loans, which typically requires life insurance. This is finally a replacement for group products that were historically offered for installment and mortgage lending made obsolete by regulation and operational dictates and are no longer generally offered.

Finally - a comprehensive wage replacement product is being introduced. This product provides options for income replacement in the event of medical disability, income replacement for involuntary job loss and income replacement in the event of re-hire at a lower wage level.

In the lending area, all of these insurance products also provide significant levels of personal family risk management and risk mitigation for community bank customers. Certainly, it is apparent that insurance is needed to replace the family home in the event of damage or loss to the house itself.

But just as devastating to a young family would be the death of a breadwinner, of either spouse, and facing how to pay the mortgage without the income lost.

And if a breadwinner could not work because of a disability or job loss, once again, how is the loan payment to be made?

Family and customer risk management, in a climate of looming financial uncertainty, may be an additional tool that makes sense to make available to community bank customers.

Finally, while this is not insurance, it is an area that we have begun to see in a number of iterations. The most recent, and perhaps the most interesting, is a white labeled “concierge” service targeted at mortgage lending, but ultimately available to all customers. The initial product is for potential mortgagors that are looking to move. This is a service that provides complete support and facilitation for the moving process. Ongoing- a national network of suppliers for all aspects of homeownership- carpenters, handymen, cleaning, all encompassing. We include this initiative as an illustration of the lengths financial services companies are looking to in support of their business model.

Adding products to support key bank areas puts community banks in line with other sectors of financial services industries. Mortgage servicers, title companies, investment firms, big box stores and credit unions have moved very quickly to vertically integrate insurance into core product offerings. Customers are growing to expect- and soon to demand- related insurance products to be an integral part of their financial services transactions.

The good news? Technology has made it possible for community banks to add these services at minimal cost and without having to license bank employees and divert attention from core bank responsibilities.

To learn more about the rapid transformation of the financial services industry and what opportunities might fit the strategic plans of your bank, call Jim Harvin at 517.351.4158 or jharvin@jlhassociatesllc.co for more details.