Bank-Owned Life Insurance: Simplifying BOLI Sales & Administration

Bank-owned life insurance (commonly abbreviated “BOLI”) is an increasingly popular investment vehicle for banks and savings associations.

Explore the reasons why BOLI is becoming ever more prominent, as well as highlighting tools that life insurance carriers and brokers can deploy to more efficiently and cost-effectively market and administer bank-owned life insurance cases, plans and policies.

BOLI: A Tax-Efficient Option for Many Banks

Despite an ever increasingly regulated environment, more and more U.S. financial institutions are diversifying their investment portfolios with bank-owned life insurance. How many? According to the Equias Alliance/Michael White Bank-Owned Life Insurance (BOLI) Holdings Report, 54.8 percent of banks and savings associations reporting (3,801 of 6,940) held BOLI assets at mid-year 2013. This is up from 51.9 percent of institutions in 2012. Just a few short years ago, less than 50 percent of banks and savings associations held any BOLI assets.

BOLI may be differentiated by three types of assets:

General Account BOLI

General account BOLI is held by more than 93 percent of banks with BOLI, accounting for 40.3 percent of all BOLI assets.  In general account BOLI, the general assets of the insurance company issuing the policies support their cash surrender values (CSV).

Separate Account BOLI

Separate account BOLI accounts for nearly 50 percent of all BOLI assets, despite being held by only 15.5 percent of banks reporting BOLI. Under separate account BOLI, CSVs are supported by assets segregated from the general assets of the insurer and the policyholder assumes the investment and price risk of the assets.

Hybrid BOLI

Hybrid BOLI is utilized by approximately one-third of banks reporting BOLI but only accounts for about 10 percent of BOLI assets. Hybrid BOLI combines features of both general and separate account insurance products, with the general assets of the insurer supporting the policy’s CSV but with the banks being able to select the investment strategies in which the premiums are invested.

BASEL III regulations will demand that insurers more frequently provide more data to their banking clients. As BASEL III is implemented, the likely impact will be a change in the mix – but not the popularity – of BOLI investments. Considering that more than 93 percent of institutions currently investing in BOLI use general account BOLI, increased analysis efforts and risk weighting related to separate account and hybrid BOLI will likely drive more assets toward those general account products over time.

Clearly, BOLI is popular – and for good reason, especially in today’s interest rate environment. Many financial institutions find that the tax-deferred interest generated by fixed-income BOLI policies is higher than that earned on other investments with a similar risk profile.

BOLI’s status as a tax-favored asset has made it a favored method for offsetting the cost of employee benefit programs (e.g., health care and retirement), increasing earnings (and generating tax-free income when held to maturity), and improving shareholder value. Bank-owned life insurance investments have also proven to be an effective method of balance sheet diversification.

Tapping into the Growing BOLI Market

Leading life insurance carriers and brokers long ago recognized the need to serve the bank-owned life insurance market with custom-tailored products and robust support solutions. After all, BOLI-specific products have been available for some three decades. But as the BOLI market grows – taking potential sales opportunities with it – it’s never been more important to operate efficiently, provide superior client service, and provide ever-increasing amounts of data analytics.

In today’s challenging economic climate, that’s often easier said than done. With budgets largely stagnant – or shrinking – it’s rare that carriers or brokers can simply throw money at the issue. Working smarter – not simply more – is the key.

In the real world, working smarter often manifests itself as increased focus on system integration, leveraging modern technology and taking advantage of cost-effective outsource models for both core and secondary tasks. And that means one thing: To effectively sell and support BOLI while making the most out of limited financial and human resources, it’s essential that carriers and brokers find and engage effective partners.

Outsource Partners for BOLI: What to Look For

These days, outsource partners of BOLI carriers and brokers are far more than traditional TPAs. Leading providers, like Andesa Services, offer a wide range of services, impacting the entire life cycle of a BOLI policy, plan or case. These include:

• Flexible, scalable policy administration tools, hosted in the cloud, securely accessible via the web and fully integrated with illustration and reporting engines.
• Efficient, web-based plan administration tools, providing accurate data to brokers and end clients online, 24/7/365.
• Dynamic policy and case reporting systems, offering no-wait access to reports at the case, division or policy level from any computer with web access.
• Accurate, integrated pre-sale and in-force illustrations, drawing values from a common product calculation engine.
• Advanced new business processing capabilities, including e-signature, vastly reducing the time spent on enrollment – and dramatically increasing the percentage of In Good Order data filed from brokers to carriers.
• Modern self-service tools, improving access and improving experience for end clients.

Conclusions on Bank-Owned Life Insurance Sales and Administration

As evidenced by higher rates of ownership and dramatic increases in cash surrender value of holdings, bank-owned life insurance continues to be a popular investment vehicle for financial institutions of all sizes. Therefore, opportunities exist for carriers and brokers offering BOLI products. However, a challenging economy presents hurdles to providing high-end services with in-house resources. The most successful carriers and brokers partner with a quality service provider to provide efficient, integrated BOLI services utilizing modern technology platforms while minimizing staffing and infrastructure costs.

– Ron Scheese, President & CEO