Operating a bank is expensive. The costs can be overwhelming after considering all the reasonable costs incurred with the administration of managing the flow of money for customers. When looking through the lens of an accountant, walking into a local branch can be eye opening. Overhead expenses can be seen all around – employee compensation and benefits, network and security costs, and even a cost associated with depository slips. Just turning on the lights contributes to the bank’s operating expenses. Keeping costs relatively low and generating increased revenues is the endgame for measuring profitability, which is why the efficiency ratio is a key indicator of a bank’s performance. The ratio is designed to be a normalized measure of the bank’s ability to turn resources into revenue and is used as a benchmark against peers. The lower the ratio, the better. Achieving a lower efficiency ratio can be accomplished by pulling many different levers, including insurance. If properly executed, insurance programs can be a key lever to increase the revenue while maintaining a flat expense line.
Banks can offer insurance through multiple avenues. A customer can go directly to their financial advisor to get a full financial picture and purchase insurance as recommended. While this method is effective in terms of providing overall sound financial planning, the reality is advisors only have capacity to meet with a small amount of individuals. Additionally, there are often thresholds that determine which customers are served directly by financial advisors. Providing insurance to the masses however, is not as difficult as may be perceived. If a bank is not an expert in the insurance industry, then a partnership with an insurance marketing firm will be critical. A successful partnership relies on four main points:
1. Understands the market needs and identifies opportunities to complement traditional banking products with solutions customers need
2. Provides your customers with meaningful products and ease of access through multiple channels
3. Delivers an unmatched customer experience through advanced analytics
4. Emphasis placed on the value of your brand, not the brand of the insurance marketing firm
The partnership with a leading industry expert has relatively low to no cost to the bank while enhancing revenue through premium collection. The value to the bank is realized through the value to the customer. When the strategy is properly executed insurance can play a key role in improving a bank’s efficiency ratio.