Filling the breach

In the previous two articles we have reviewed the changing role of banks in the provision of insurance and savings products. We are now in a new century. This article will consider what might be an appropriate model for the future.

One of the big shifts in western society in the latter half of the twentieth century is one that took power away from producers to customers. No longer do people unthinkingly accept what big institutions such as the Government or the law or banks tell them. They will make their own evaluation based upon information available to them. Thus banks need to understand what is important to their customers. Customers tend to form an opinion about a financial services organisation as a whole, so poor service on banking or an unsympathetic attitude to a request for an overdraft would not make the customer feel warm towards his bank and they would be unlikely to buy other products from them.

Thus the service provided by a bank across its range of products is as important as any product itself. Of course there are different needs and requirements for different types of people. A self-employed person has different needs to an employed one or to a housewife. Similarly a young adult has different needs to a retired person. The successful bank would be one who is alert to this. 

The next step for the bank is to be alert to the changing needs of its customers as they go through life. There are certain triggers for purchase that need to be identified. These triggers are stages in a person’s life when circumstances change and financial needs change with them.  One example of this is when someone gets a substantial salary increase. Naturally, such an individual would want to upgrade his standard of living. This might involve buying a better house. If so, a mortgage may be required together with   mortgage repayment, mortgage protection, vehicles and home insurance.

 Looking longer- term, the family of our individual will get used to that higher standard of living and would not want to lose it in the event of the main income earner’s untimely death. So life assurance is required to replace income on death. Of course death is not the only calamity. Long-term illness is another. And then looking longer term there is the need to make sure that an adequate standard of living can be maintained when the income stops. In other words a pension has to be set up. Many people will have one from their employer but for others it is a case of making their own provision.

Other triggers are marriage (and un-marriage or divorce), change of jobs, children growing up and leaving home and death of parent that can sometimes lead to an inheritance. In virtually all of these, an individual’s main bank, ie the one into which his salary or pension is paid and out of which all direct debits are paid, is in the best possible position to assist him. However, the approach from the bank to its customer has to be non-intrusive and helpful. Inevitably no matter how well off an individual is, his potential needs are greater than his income can support. So choices have to be made. Should he buy a smaller car and save for his retirement? Should he worry about protection against death or illness? In the case of people in their fifties, who have probably accumulated some savings in readiness for retirement, a constant question is “Where shall I put my money?”

The bank manager needs to develop a relationship with his customer that is based on trust, built upon knowledge of the customer’s financial circumstances, and is mutually beneficial. It is a relationship that demands patience because profits to the bank may be slow to accrue in the short term but are more durable in the long term. Banks cannot afford to take this custom for granted, they have got to be aware of the temptations that exist for their customers in the form of inducements from competing banks and other institutions. We now live in a world where banks have to work continuously to keep customers happy if they wish to get the most from their customer base. The ability to supply their own insurance products supports this objective.

If they are able to meet their customers’ needs, they will have a long and harmonious relationship. However, to establish a total picture of a customer’s needs and assets, banks require to undertake a significant investment in management information technology.  Because we are talking of long term rather than short term rewards to banks, only the larger banks stand a realistic chance of delivering. And if banks achieve this, their customers can go about enjoying life secure in the knowledge that they are getting first class advice on financial issues from a tried and trusted financial institution.

O’Brien is a partner in B&W Deloitte and Touche, the actuarial and and consulting practice of Deloitte and Touche in the UK. He has undertaken a number of assignments supporting mergers and acquisitions in the Caribbean and has adsvised a number of Bancassurers in Europe.

This is the final in a three-part series.