In this article, we explore the viability (and general suitability) of buying insurance from banks.
Yes banks, the bastion and bedrock of our financial industry. Long famed for meagre deposit rates, a bank is actually much more than just a place to watch your money grow (slowly). Over the decades, banks have evolved to just keeping money safe and earning their keep via loans.
These days, banks have remodelled themselves to (theoretically) handle all of a person’s financial needs. These include loans (housing, renovation, business), credit cards (Mastercard, Visa), investments (Dual Currency Returns, Structured Notes, Unit trusts), and of course, Insurance.
It is the insurance that interests us of course, and incidentally, there is even a proper term used when insurance is purchased from a bank. Bancassurance, in case you were wondering.
Before we explore the suitability of buying insurance from the same person that opens your bank account, it is instructive to for us to know more about what exactly does a banker do.
The Role of a Banker
This is not nearly as straight-forward as it seems, and I am drawing upon my experience in the banking industry and as a branch manager here.
The long and short of it is – a banker basically helps you manage your money.
In reality, this can be broken down into this (non-exhaustive) list of duties and functions:
Assistance with remittances/telegraphic transfer
Fixed Deposits / Time Deposits handling and roll over
Application of Credit Cards
General Enquires – Account balance, Replace ATM cards, Issue Debit Cards etc
Issue Housing Loans
Issue Balance Transfer Loans
Complaint Resolution – can be about anything, from the queue time to lack of magazines to banking errors
Sale of Investment products (Structured Deposits, Unit Trusts, Structured Notes, Dual Currency Investments, etc)
Sale of Insurance (but of course!)
Although a banker can be segregated into 3 distinct tiers (Mass banking, Premier Banking, and Private Banking), by and large their duties are the same. (Only their customers’ general wealth changes)
In stark contrast, the role of an Insurance Agent or Independent Financial Adviser (IFA) is to address your insurance needs. And then some.
With a clearer understanding of the myriad of roles that a banker needs to perform, let’s look at what is the focus of banker.
A Banker’s Focus
We can argue all day long about customer service, satisfaction, and other altruistic focuses that a banker may have, but I speak from experience – it’s all about the bacon.
Why? Unlike Agents and IFAs, bankers draw a salary. And to paraphrase Uncle Ben from Spiderman, with (great) salaries come (great) sales targets.
My personal experience? It’s a cut throat world out there in banks to generate fee-based revenue. (Revenue that the bank earns from selling stuff)
Weekly Meeting to discuss sales – check.
Quarterly Business Performance Review to discuss sales – check.
Remedial Action to improve sales – check. (as much as 2 – 4 times a month)
Regular Email Blasts to highlight underperformers – check.
Roadshows to generate sales – check.
Daily Sales reporting – check.
Hourly Sales Reporting – unbelievable, but check.
Nightly Teleconsulting (cold calls) – check.
Pressuring Bankers to quit due to poor sales – check.
Why does all of this happen? It’s the salary, and the expectations of performance that comes along with it. This goes all the way up to the top, starting from the banker to the branch manager. To the cluster manager managing several branches, to the head of branch banking, to the head of Consumer Finance. They all have salaries, and they all are under the same pressure to meet targets.
You may point out that Agents and Advisors may have revenue generation on their minds, but the pressure put on bankers is immense. If an agent doesn’t make a sale, he has less commission for the month. If a banker misses his sales target, he might be put on the chopping block.
So to alleviate this pressure, a banker is likely going to be concerned about making the biggest sale possible in the shortest amount of time.
Which leads on nicely to my next point.
Reality of buying Insurance from a Banker
For mass banking (majority of people who visit a bank), the extent of insurance sales would be: endowment plans.
It plays out like this:
You sit down in front of a banker (for some banking need).
Banker notices your account balance and mentions that interest rates are low. Wanna up your returns?
You are cautiously interested.
Banker says there is a promotion going on with savings plans.
You walk home with an endowment plan.
Reality? I’m afraid so.
We told this story about a woman who had a nightmarish experience buying insurance from a bank here.
Why endowment plans?
They are easy to understand and less time needs to be spent on them. (“Put money in, wait, and get higher returns”)
Endowment plans also address a sore point in banks, which is the low deposit rates.
To further prove this point, most bancassurance plans sold are endowment plans. There are some whole life and term plans in the mix, but this is a tiny fraction. As for medical insurance such as shield plans, you couldn’t even buy them from your banker.
Am I saying there are no good bankers out there?
On the contrary. I’ve had the pleasure of working with many a banking professional who were well versed in what they do and successful doing it.
But the odds are not in your favour.
Bankers are overwhelmed with their immense workload, and their incentives to create revenue are likely not generally in line with your insurance needs. Needs discovery and analysis requires far too much time, and it cannot be done over a desk in 30 minutes. No one hopes to spend more than 30 minutes in a bank anyway.
Even if bankers had the time and inclination to address your insurance needs, they are not privy to the full suite of insurance products that make a rock solid protection portfolio.
In general, if I were curious about the realm of investment opportunities, I might speak with a banker to explore my options. They usually are better versed with the investment universe.
But to address my insurance concerns, I would prefer to approach an agent or advisor, simply because it is their bread and butter. This is the same analogy to visiting a GP vs visiting a specialist.
So to wrap things up, I just want to say this – don’t avoid your banker, he or she is useful in addressing your financial concerns and investment needs. (Perhaps even to skip the queue if you have a non-cash related transaction.)
But by virtue of their limited time, training, and product offering, it does not make sense to have your insurance needs (fully) taken care of by a banker.
Try to remember that the next time you renew your time deposit.
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.