Case Study: Building $15 MM LTC Business for a Large Regional Bank
In 2013, Clarke Financial Group was approached by a large regional bank with over $90 billion in assets. Bank executives were seeking strategies to improve their marketing of long term care products. A different marketing firm was servicing the bank, but did not provide field support to its 1,000 branches or one-on-one product training to its advisors. Our consultation uncovered several business opportunities that were not being met.
Client and Industry Findings
- Marketing and selling standalone protection products, such as long term care, can result in improved profits (due to the product’s higher new business margins). The Reinsurance Group of America, Inc. reports that “new business margins for standalone protection in nearly every market worldwide are significantly higher than those for savings products.” While the European banks have made substantial inroads in the sale of long term care products, the American banking system lags behind. This lag does not correspond to the amount of business opportunity that currently exits, and will continue to grow due to our aging population. Consider these statistics from The Scan Foundation’s June 2012 Fact Sheet on Growing Demand for Long Term Care in the United States:
- The number of Americans who need long-term care is expected to increase from approximately 12 million today to 27 million in 2050.
- Baby boomers (those born between 1946 and 1964) will turn 65 between 2011 and 2029. During this time, 10,000 Americans will turn 65 everyday.
- By 2030, when the last baby boomers turn 65 and older is projected to be about 72 million, or about 19% of the total U.S. population (up from over 40 million or 13% in 2010).
- Banks can develop stronger customer relationships and increased customer trust through long term care sales.Maturing consumers own 80% of all money in banks and credit unions, but they do not hold the same feelings of loyalty to their bank, or to any brand for that matter, than previous generations once did. And this trend is getting stronger. By providing programs directed at elder customers, banks and credit unions can build closer relationships with these maturing multi-generational families (aging baby boomers and seniors) in their customer base and communities and ensure a substantial increase in retention value and profitability. Cross selling opportunities for long term care financial products are also available to the bank to further cement the relationship with customers and produce new revenue streams. Offering financial service products, however, can improve bank customer loyalty: approximately 35% of U.K. bank channel customers have been shown to be willing to pay more for personalized assistance, and are more likely to be repeat purchasers of financial products (including insurance) from their banks.
- Not only is the need for long-term care growing, the expense is accelerating faster than inflation. In 2014, the annual price tag of a semi-private nursing home room was $86,815. Multiply that figure over three years — that’s $260,445, and over five — $434,075. This expense can be catastrophic to a family’s financial plan. Some financial planners are concerned about the liability of not addressing long-term care concerns.
- Bank advisors require education on long term care sales. Many producers don’t know how to begin the LTC conversation with their own parents — so speaking to clients is even more difficult. Yet more than ever it behooves financial advisors to have that conversation given that many individuals’ retirement assets were cut by a third or even half as a result of the economic crisis of the last few years. According to the July 12, 2012 New York Times article, “Our Ridiculous Approach to Retirement,” an individual needs roughly 20 times their annual income in financial wealth. If a customer earns $100,000 at retirement, they will need about $2 million beyond what they will receive from Social Security.
- Asset-based long-term care products are becoming more attractive. Mortality and morbidity protection products are not correlated with investment, macroeconomic or other forms of market risk, which minimizes balance sheet risk for insurers, therefore the pricing of asset-based LTC products is more competitive.
Conclusions and Recommendations
- We recommended the introduction of a comprehensive long term care program to protect existing assets, improve customer loyalty, and increase profits.— It is well known that the more relationships a bank has with a customer increases its ability to keep assets in the bank. If a bank is not offering long term care options to its customers, then those customers will procure services from another provider. This increases the potential for loss of assets. The absence of a long term care program in terms of business competitiveness can be viewed as failure to address a competitive threat. It is also a failure to address opportunity. RGA’s white paper “Unlocking Bancassurance Protection” reports that new business margins for standalone protection in nearly every market worldwide are significantly higher than those for savings products.”
- We recommended that our client begin long term care education for its advisors, specifically the implementation of:
- Clarke Select — our platform of dedicated wholesaling services that includes carrier vetting , product selection, advisor training, sales marketing, approved collateral, 24/7 login website access, and access to our LTC specialist who directly assists with case management.
- Sales training — identifying when to begin and how to begin the LTC conversation, handling objections, presenting appropriate product options
- Product training — customer / product interest profiling, appropriate product selection, custom illustrations for cases, the right marketing collateral for presentations
- We recommended that our client allow us to begin direct marketing campaigns to their database. With data from long-term care insurers, we intend to proactively identify suitable customer segments for marketing activity. Consider the numbers. Our client has over 2 million customers; 18% are currently over 65, and another 34% are between the ages of 45 and 64. This means that the bank has 360,000 customers who may require a LTC policy immediately, and another 680,000 who are ripe for LTC discussions.
- In September 2013, the bank formally engaged Clarke Select services.
- We immediately assigned wholesaling and internal talent to their account, and began sales and product training outreach to their 2-300 advisors.
- Product implementation has been phased.
- 10 year relationship with the insurer. Continue to be their number one marketing organization.
- Phase I: 2nd Qtr 2014 — Introduction of an Asset-based Long-Term Care product. Expected first year results ending 2nd Qtr 2015 are $3,000,000.
- Phase II: 2nd Qtr 2015 — Introduction of an additional asset-based long-term care product and several traditional long term care solutions. Projected LTC sales for 2015-16 are $10,000,000.
- Phase III: 3rd Qtr 2016 — Introduction of integrated direct marketing campaigns. Annual sales are expected to reach $15,000,000 by the end of the third year.
While this case study focuses on a bank client, similar findings and results can be applied to broker-dealers, credit unions, and producer groups. Clarke has extensive experience developing and implementing long term care programs for a variety of financial service institutions. We derive our bank channel model from successes in European bancassurance programs and extensive knowledge of the American financial service and insurance industries.
The previously mentioned RGA white paper states that “during the three-year period ending in 2011, the bank channel market grew by 6% worldwide — nearly four times faster than comparable general growth rates for life insurance sales in many of the world’s markets.” Although standalone protection products represent just a small percentage of current total bank channel premium worldwide, they offer strong growth potential for banks and credit unions. The white paper makes an example of Spain– one of the best examples of bank channel insurance success in the world– where insurers derive approximately 80% of all life premiums from banks and credit unions.
Bank channel programs can provide insurers with a launch platform for new products that enables manufacturing scale to be achieved far more quickly than if launched through traditional distribution channels. These programs are not limited to long-term care. We strongly recommend enhancing bank services with annuity and life insurance products.
News articles and white papers cited in this Case Study can be found in The Clarke School.