Insurance Sales: Old Hat for Northeast Thrifts

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Insurance Sales: Old Hat for Northeast Thrifts

Should Congress allow banks to sell insurance? That question is hotly debated in Washington these days, but it probably seems like a tempest in a teapot to savings banks in three northeastern states that have been selling life insurance for decades.

Taken together, savings banks in Connecticut, Massachusetts, and New York have $32 billion of policies in force, enough to rank among the nation's 50 largest life insurance companies.

And the business is growing apace. Over the past five years, the value of savings bank life insurance in force has doubled, largely because the states have increased the amount of insurance that a bank can issue to any one individual. In Massachusetts, for example, individuals can now get $250,000 of SBLI coverage, up from $62,000 just four years ago.

"Immediately, our issuance tripled," said Francis D. Pizzella of the Massachusetts SBLI Council, which administers the state's savings bank life insurance program.

Another factor driving the growth of SBLI: It is relatively inexpensive, given that the SBLI Council and its counterparts in Connecticut and New York limit the profits that member thrifts can earn on the business.

Alternative to Capitalism

After all, SBLI is not a creature of capitalism but of state governments that wanted working people to have access to basic, low-cost life insurance. With the strong support of former Supreme Court Justice Louis D. Brandeis, Massachusetts' SBLI program came into existence in 1907, following several insurance scandals. Thirty years later, New York and Connecticut initiated their own SBLI systems.

A.M. Best's Cost Analysis

Savings banks decline to give comparative costs. But A.M. Best Co., the Oldwick, N.J.-based firm that tracks the insurance industry, indicates that SBLI can be far less expensive than traditional insurance.

For example, the median premium for the first year of a $250,000 term policy sold to a 35-year-old, nonsmoking male by 75 major insurance companies nationwide was $300.44, according to A.M. Best data. A comparable SBLI policy sold in Massachusetts would cost $225, a 25% savings over the median.

Savings would be even more dramatic over time. By the 10th year, the same policyholder would have paid $3,050 in Massachusetts versus $4,369.61 for a median-price policy -- a 30% savings. In New York, comparable figures for SBLI are $180 in the first year and $3,232.5 in the 10th year, savings of 40% and 26% respectively.

|It's a Good Package'

What's in it for the thrifts? So far, SBLI has been little more than a way to build customer loyalty.

"It's a good package to offer consumers," says William P. Morrissey, executive vice president of the Boston Five Cents Savings Bank, a major SBLI policy writer in Massachusetts. "It gives us a little advantage over commercial banks. It's one-stop shopping."

"It's an attractive means of building customer relationships," agrees Daniel Keppel, insurance administration manager for the Dime Savings Bank, one of the largest writers of SBLI in New York state.

But that could change in Massachusetts under proposed rule revisions that would allow savings banks to charge fees and make profits on SBLI. Last year, following a five-year struggle, the state passed a law allowing the Massachusetts Savings Bank Life Insurance Council to become a corporation. The banks, which will be sole shareholders in the corporation, may receive dividends and banks selling policies will be able to collect fees.

If, as appears likely, the Massachusetts insurance commissioner signs off on a plan putting the new system into effect, as of Jan. 1 the new company will supplant both the council and the individual SBLI departments in the 53 Massachusetts banks that currently sell policies. …