KPMG Analysis: Insurers Expand Retail Horizons

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By Sheri Rothman, Senior Editor, Insurance Insider

Although the likelihood of an insurance company-sponsored
caf� appearing on street corners across America may be slim, it doesn’t necessarily
mean that selling insurance via other retail methods is a bad idea.

Over the past few years, banks have started opening
Internet caf�s, retail outlets, and branches within supermarkets or coffee shops in an
effort to change their image and become more user-friendly. Customers can walk into a
Wells Fargo or Umpqua Bank caf� and check their stocks, open a checking account, and buy
a certificate of deposit along with a cup of java. And they can do the same and browse for
financial books and software at Washington Mutual’s new Occasio stores.

Although this format has worked well for banks, it is
unlikely that insurance companies could be able to make similar caf�s a profitable
venture. A lack of daily activity could hinder their success, says Madelyn Flannagan, vice
president of education and research for the Independent Insurance Agents of America.
“At first glance, an insurance caf� does not make sense,” she says. “You
do your banking on a daily basis. You purchase insurance once a year. I know that with my
bank account, I’m always moving things around. But I don’t do the same thing
with my homeowners insurance.”

Financial services marketing specialists are also skeptical
of an insurance caf�’s profitability. “I think some insurance players could
open retail outlets in places with high pedestrian traffic like Manhattan, but if they
only sell insurance, they may not get a payback,” says Charlene Stern, vice president of strategy
marketing and retail design with NewGround, a strategic marketing firm for financial services.

And if insurance caf�s were to sell other products, they
would have to make those offerings known from the get-go. “H & R Block sells lots
of other things besides their tax services, but people think of them as tax preparers,” Stern says.

Many insurance products are not a straightforward sell
either. Some types of insurance, such as travel and auto, are becoming commodities, says
Stern. But more complicated types of insurance, such as life, require in-depth service.

Insurance companies may also have a problem opening retail
outlets because of potential distribution channel conflicts, says Neil Parkinson, a
partner in KPMG LLP’s financial services practice in Toronto. Insurance brokers and
agents may become unhappy with insurers who try to reach customers through other means.

“If insurance companies open a caf� and start selling
products directly instead of through their usual means, the brokers may think the
insurance companies are trying to get around them. So insurance companies will probably be
leery of doing something that would make it look like they are going direct,” Parkinson says.

While an independent insurance caf� may not fly, selling
insurance through bank caf�s can still be a smart move for insurers, especially since
insurance companies are interested in finding new channels in which to build sales. Stern
says selling insurance products through a bank’s caf� would be a great way to boost
exposure because the insurer could piggyback off the bank’s customer base. And a
computer caf� can help sell insurance because it’s engaging for customers.
“It’s a sales tool,” says Stern.

Stern adds that insurance companies have struggled to sell
products through banks because the existing bank branch and culture is not the most
effective way to sell insurance. “What’s clear is that financial services
companies are finding they need to change in order to sell insurance and grow. If banks
don’t grow what they are, insurance will be an afterthought,” says Stern.

Wells Fargo has recently redesigned several of its branches
in the Los Angeles and San Francisco areas to be cozier, and to suit their local
communities better. “It’s a more touchy-feely approach to banking, a warming of
the store to make it a more pleasant experience for the customer,” says Ravi
Poorsina, Wells Fargo spokesperson. “Some of the stores have couches and fireplaces.
And branches in Hispanic neighborhoods in Los Angles have art to appeal to that population.”

Selling insurance was one of the motivations for renovating
the branches, Poorsina says, especially since the bank is focusing on growing its
insurance department. “We made sure there was more privacy by the way the furniture
is set up, and we wanted to make sure the customers felt comfortable.”

The cozy setting at Umpqua Bank’s internet cafes in
Roseburg, Oregon attracted more customers to the bank. The bank opened its first Internet
caf� branch in 1994, and within two years, it went from third in the market to first,
says Lani Hayward, the bank’s senior vice president of marketing. More bank customers
means more people become exposed to insurance products. “The cross-sell ratio is
higher in these stores for all products, and that includes insurance,” she says.

However, she does not know how many more insurance products are sold through the
coffee shops than through the traditional branches since data is not broken down into that much detail.

Bank cafes are also a good place for independent agents to
have additional contact with potential customers. Several customers may just want to
browse for insurance information. “Agents that make information available in as many
venues as possible do themselves and consumers a great service,” says Flannagan.

Insurance companies could, however, follow in banks’
footsteps by offering services via other retail outlets, such as Wells Fargo has done in
supermarkets. Wells Fargo has 800 in-store branches in 23 states. Some stores feature
banking centers, which are podiums with a Wells Fargo representative and several ATMs. No
cash is handled aside from the ATM, but customers can open accounts or ask questions.
Other supermarkets contain full in-store branches, which are set up like a pharmacy
counter and offer the same services as a full-service branch, except for safe deposit boxes.

Wells Fargo also combines branches with Starbucks coffee
shops to capture convenience-oriented customers. “Having branches in supermarkets, and
combining branches with Starbucks allows the customer to do one-stop shopping,” says Poorsina.

KPMG’s Parkinson says the same theory can work with
insurance companies, especially if they plan to sell auto insurance or other simple
products. “The insurance companies can reach potential customers in a place where
they will be anyway. For example, if shoppers are interested in car insurance, they may go
up to the insurer’s kiosk in a supermarket and inquire about premium costs. This would be most
effective for straightforward products that are easy to understand and compare,” he says.

Some insurance companies are already taking that route.
Last year, The Hartford formed a partnership with Sears to sell auto, homeowners and other
personal insurance through the retailer’s stores. Allstate used to sell products
through Sears. Sam’s Club and Wal-Mart stores also have kiosks where customers can
purchase auto or homeowners insurance.

Insurance sales through retail outlets is working out well
in other countries as well. Allianz has brokers in Costco stores in Quebec, and Vancouver drugstore
chain London Drugs also serves as a broker, selling auto, travel, home and health insurance.

And UK pharmacy chain Boots sells insurance products off
the shelf – literally. Shoppers can pick up health coverage in the cold medicine aisle
and travel coverage alongside motion sickness remedies. The insurance comes in packaging,
about the size of a novel, containing an insurance policy that is activated at the cash
register. The customer then goes home and mails in a form.

“How easy is that? Does it get any easier than insurance in a box?,”
Stern says. “This idea shows how easy it [can be] to sell insurance.”

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Article reprinted from the Insurance Insider, Copyright ©
2001 KPMG LLP, the U.S. member firm of KPMG International, a Swiss association. Printed in
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