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Buying Insurance from a Banker: Yay or Nay [Critical Assessment]

Posted 8 December, 2016 by Clearly
in Opinion

 

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:

 

Account opening/closure
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!)

 

Feeling overwhelmed yet? Its normal for a banker

 

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

 

Revenue Generation.

 

Exactly what it says on the tin

 

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.

 

Comical? Yes.
Reality? I’m afraid so.

 

Interesting! I never knew how little my money can grow over the years. Now can I go?

 

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.

 

Verdict: Nay

 

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.

  1. Bank Shot

    I think that bankers can do a better job than insurance agent.
    As bankers, we get to know the financial situations better as we can see the wealth of the client and recommend the right products.

    We will recommend life insurance if the customer wishes to but you cannot blame us when the customers ask for superior returns and not protection.

    1. What rubbish

      That is because the customers don’t understand Life Insurance and that’s the job of a representative to educate. Talking about understanding financial situations better, did the customer even approve the banker to look at their balance and recommend something?

  2. Luke

    Agents sells ILP and 25 years plan for their pocket benefits, not for their clients. There’s always bad sheeps bankers/agents around. But agents are more extreme when it comes to compliance and integrity issues, such as using erasable ink and forgery or pure miselling.

    1. Stop there

      No.1 not all agents push for ILP. ILP isn’t all that bad either, different strokes for different folks. Don’t pull in compliance, how many bankers out there from ground up understand comprehensive financial planning and have ChFC or CFP. I’ve seen young clients with high premiums for $40,000 sum assured for their life insurance that pays up in 15 years. What can $40,000 do?

      1. Lance

        ILPs are the worst type of insurance.

        Using the phrase different strokes different folks is a strawman argument.

        The cost of ILP is so high relative to just doing a pure investment+ term. Same result lower cost. Wider choice of funds to choose from as well with higher coverage.

  3. Nonsensical replies above

    Bankers sell you a high premium policy to hit their target and then move to another bank, I am not saying that ALL agents don’t do that, but unlike Bankers we have time to build a relationship with our client and take care of them compared to relationship managers or personal Bankers.

    We are definitely more sincere and caring towards our clients, nonetheless Bankers and us are all doing a job we should not create a war between both groups.

    1. Clearly

      Hi

      You are only half right. The article is written by an ex-banker, but he did not join the insurance industry. He is in the business of doing insurance education.

      While we are not expecting 0 criticisms of our work, we stand by our mission and vision.

      In case you needed a separate source of opinion on banks:

      http://www.straitstimes.com/business/thinking-of-buying-insurance-from-a-bank

      Happy to keep receiving comments, as long as they are constructive.

      Clearly

  4. Its the same

    Be it bank/tied agent/IFA, there will be good ones and not-so-good ones. Its tough to find good ones, because everyone know how to act like they really cares for you.

    Always open your doors and options, feel free to let others review your portfolio. Listen to what a third party has to say about your insurance portfolio. Then check back with your current agent. Critically analysis their opinion and make an informed decision.

    Avoid making impulsive decision for the sake of vouchers or free gifts.

  5. Bankers just want your money

    Evaluate your choice of financial planners, look at their track records, and see how they explain to you your different needs. Coincidentally, I just overheard a group of agents from a neighboring agency talking to a lady who appears to be an ex agent (no surprise she is an ex agent seeing how gullible she is to bank sales tactics). She is a premier banking customer with OCBC, and of course they want to sell her products. And all their products come from GE. She was telling the agents all about how her RM told her getting it from OCBC is better, it’s only for premier banking customers, and how she stand to get better returns. Absolute bullshit. My GF mother received the same brochures, and they were exactly the same from GE. In fact, in GE we could source for cheaper premium financing from other Banks. I felt like telling her to not be so foolish.

  6. Infinity & Beyond

    You can find the real true professional advisers only in the insurance companies (but they are restricted by their biasness) and FA advisory firms, yet you need to be very selective as the real true advisers in this industry are in very very small numbers and are usually the more matured, seasoned ones with professional qualifications like CFP, CHFC, STEP and some with even CPA and CFA. They will talk about income tax reduction strategies like SRS or CPF top up, seldom talked about coverages like disability income, plugging coverage shortfall through cost efficient term plans, estate planning strategies through wills & trust and formulating true retirement planning strategies with a mixed of good annuity plans, investment portfolio comprising of ETFs, bonds, securities and even some but rare solid funds that have superb consistent track records. Yes UT has its flaks for cost issues but some are a bang for your buck for what they charge. Those in the industry will know these champion performers. These rare but real true blue professional advisers can even address your concerns if you are a business owner with business insurance risk concerns whether it’s in the arena of general insurance like Professional indemnity or D&O covers or even business insurance like Buy/Sell, Keyman…etc They can even formulate a comprehensive HR group employee benefits for the towkays’ staff and even structure a corporate pension scheme for their staff benefits.

    Can the above ever ever be done by a banker even if they are seasoned and 20yrs in the banking? The answer is a big NO.

    Having said that, the above description of this amazing adviser in the insurance or FA industry is a very rare gem and probably forms less than 10% of the entire industry and so if you happened to chance upon one, please do the industry a favour and spread the word because good things should never be kept a secret 🙂

    1. Lance

      Matter of truth is not whether it is somebody from banking or agency, the reality of the industry is such that approx 10% of the entire industry know their stuff.

      To say that somebody from banking can’t do what you said even if they are seasoned and 20 years in banking just shows your lack of exposure to the world of private banking.

      Bankers and agents have different strengths even if both are highly seasoned and professional. And there are overlapping areas of coverage.

      Would an agent know how to do a business buy sell? I’m not talking about key man insurance (which is simple stuff really) but facilitating the client to buy sell his/her biz.

      In the world of investments, agent’s access to products are more limited to the traditional products. Hedging of portfolio? Private equity deals?

      I can advise my client on comprehensive HR group benefits or general insurance but I would recognise that I’m not as competent as somebody who is a seasoned agent due to the very fact it’s not my core competency. But as a solid banker, I would have my network to connect for the client to address these needs.

      So to lambast the other side just shows your ignorance and biasness.

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