Now Is The Time For Adjusting To The Convergent Playing Field
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Much has been said about the Gramm-Leach-Bliley Financial Modernization Act of 1999 and what it means for banks, insurance companies, and securities firms.
But there has been little talk about the effect of GLB on products offered by these institutions. In particular, there has been minimal discussion of so-called "product convergence," or the blending of products from the three financial sectors impacted by GLB. We will address some reasons why in this article and what may lie ahead.
Perhaps the lack of buzz about product convergence has something to do with the fact that, thus far, the product offerings after GLB look very much like those offered before. And, in the insurance sector at least, many of those pre-GLB products already combined elements of insurance, banking, and securities.
For instance, annuities were sold through bank channels for many years prior to passage of GLB. (CD annuities even sound like bank products.)
In addition, insurance companies have a long history of selling contracts that compete with banks and brokerages. For instance, along with annuities, ordinary life insurance has the ability to accumulate earnings on deposits/premiums. Also, variable products offer all the equity exposure of mutual funds and stocks bundled with insurance features. And for consumers wanting a savings account feeling along with their variable contracts, variable insurers offer a fixed account option.
It is easy to see, then, that to meet accumulation needs, insurers already have contracts that can compete with CDs and demand deposits of a bank, and/or also respond to investment needs.
What about banks wanting to offer insurance or respond to the insurance needs of their customers? Here, the story is a little different–but it, too, reveals why there has been little talk about product convergence, as of yet.
Attempts at bank sales of insurance thus far have focused on selling existing insurance products via bank representatives or newly hired agents. Some banks have done well making such sales–in particular, in sales of annuities.
Even so, anecdotes indicate that, on a national basis, penetration rates for bank insurance sales have not reached the levels hoped for or expected.
Product complexity may be a key factor in these smaller-than-anticipated sales by banks.
After all, the insurance industry has historically developed wave after wave of ever more complex insurance products. Traditional cash value life insurance, for instance, now shares its stage with variable life and universal life. Generic deferred annuities have given way to a fixed versus variable grouping, with numerous subtypes of each. And variable annuity marketers, in their constant effort to differentiate their products, have unveiled a wide array of policy guarantees.
Banks, on the other hand, have found they need to simplify their insurance product offerings, not make them more complex.
