Buying and Selling Insurance – It’s Complicated
Although many financial institutions both buy and sell insurance, they typically rely on the counsel of outside experts to help them with both. This is because, whether buying insurance or offering insurance to account holders, both areas have certain complexities and nuances that require careful consideration.
Purchasing insurance is a vital component of every institution’s plan to mitigate risk. Those who provide executive leadership or serve on the board for banks and credit unions have a vested interest in seeing that insurance coverage is in place to protect the institution’s assets, as well as their own. There are many questions that must be considered when evaluating if the coverage in place at a bank or credit union achieves that goal. Are there any exclusions that have not been considered which could leave the instituitons exposed? Are all the necessary areas covered, and is that coverage properly designed? Is the insurer properly credentialed? Is the policy the broadest available?
9 out of 10 institutions have bond, directors’ and officers’ liability, automobile insurance, and umbrella liability policies. At least 80 percent noted having cybersecurity and privacy, general liability, property insurance, fiduciary liability, employment practices liability, workers compensation, mortgage impairment and bankers’ professional liability policies. Source: ABA’s 2017 Bank Insurance Report
On the other hand, offering insurance to consumers has its own set of challenges. A bank or credit union thinking of selling insurance needs to be well-briefed on the complexities of such an endeavor, asking:
- Why should a financial institution enter the market now?
- What are the pros and cons of building, buying or outsourcing various insurance products? What steps are involved in each?
- How does an institution get licensed?
- What are the best ways to integrate the insurance offering into the institution’s sales model?
- What are the keys to becoming profitable, and how long does it take to become profitable if those best practices are applied?
Requirements and Options
Since the global economic meltdown ten years ago, the regulations concerning risk levels in financial institutions have become even more comprehensive and complex. Though regulatory oversight and compliance guidelines are dynamic, it is hard to imagine that any administration could take take a “laissez faire” approach to risk. Keeping up with the ebb and flow that is part of this environment and selecting the best insurance option for a particular institution requires the assistance of a professtional.
Meanwhile, selling insurance has gotten more complex as well. In addition to the requirements placed on brokers and agents, there is the fact that the consumer and businesses purchasing insurance may have very specific needs that must be matched against a number of different options. In other words, one size does not fit all. This means that a bank or credit union must make sure the insurers they work with understand how to match insurance products with the types of customers and members they serve. Fortunately, outside experts with a history of helping financial institutions in these areas can be very useful in evaluating how well an insurer can target and then serve those customer and member segments.
Areas of Focus
SRM provides services designed to help answer the most complex insurance questions and addresses the concerns faced when purchasing insurance; whether to protect the institution’s assets or to retail insurance services to
customers and members.
The non-deposit review and evaluation services we offer to financial institutions include evaluation and analysis of vendor institutional insurance policies, policies, agreements, and processes concerning collateral risk management as relates to the GSE and CFPB guidelines. SRM also offers evaluation and analysis of other insurance-related areas such as wealth management, loan programs, 401(k)s, and institution-owned life insurance.
In addition, SRM assists with establishing operating subsidiaries licensed to provide insurance to financial institutions’ customers or members. Our experts can support everything from the formation of the LLC to the various administrative functions that must be addressed, e.g., all document preparation, filings, and governmental requirements. Lastly, SRM can help with vendor sourcing and selection; from crafting the RFP, to providing evaluations of the vendors, to contract review as well as negotiation.
Since 1992, using a proprietary database of industry contracts and pricing, SRM has helped more than 700 institutions add more than $2.2 billion of value to their bottom line. Our firm has built its reputation on a foundation of trust and results. Visit www.srmcorp.com for more information and follow the company @SRMCorp.