Choosing the right vendor to work with to implement, analyze and service your financial institution’s BOLI program is one of the most important decisions you have to make.
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According to OCC 2004-56, assessing the BOLI vendor’s capabilities is one of the main steps in the pre-purchase analysis:
“When making a decision about vendors, an institution should consider its own knowledge of
insurance risks, the vendor’s qualifications, and the amount of resources the institution is willing
to spend to administer and service the BOLI. Depending on the role of the vendor, the vendor’s
services can be extensive and may be critical to successful implementation and operation of a
BOLI plan, particularly for the more complex separate account products. “
Since BOLI returns are designed to be maximized by holding the policy over the long-term, the relationship between the vendor and the financial institution ideally will stretch out over 20 or 30 years or longer. As noted in the OCC bulletin:
“An institution that uses a vendor should make appropriate inquiries to satisfy itself about the
vendor’s ability to honor its long-term commitments, particularly when the vendor is expected to
be associated with the institution’s insurance program over an extended period of time. The
institution should evaluate the adequacy of the vendor’s services and its reputation, experience,
financial soundness, and commitment to the BOLI product.”
Experience and Reputation
Like most other vendor relationships, question the experience of the BOLI vendor. Ask for references and a current client list. Seek out the opinion of both current and former clients of the proposed vendor.
Commission Structure
BOLI sales pay a large commission up front with a lower commission annually as a trail. Therefore, many BOLI salespeople are incentivized to seek out the next sale, rather than servicing and monitoring their current bank clients. Ask for a complete breakdown of the vendor’s compensation (both upfront and on a trailing basis).
Reporting
Most vendors outsource monthly reporting of the BOLI asset. In effect, this disincentivizes the vendor to monitor the performance and associated risks of the BOLI product. While this allows the vendor freedom to focus on the “next sale” it provides another layer of headache when the bank has a reporting issue or seeks to make a change to the policy. Ask the BOLI vendor if they service the BOLI in-house or if the policy will be serviced by a third-party. Additionally, obtain a list of all individuals to contact regarding reporting and request a copy of sample reports.
Fee Structure
BOLI vendors may have additional charges for certain reports. There might be an initial fee for the pre-purchase analysis and installation of the BOLI policies and a separate ongoing fee for post-purchase analysis and monthly and annual reporting. Obtain a list of all of the proposed fees and ask for a detailed list of “potential” fees that you might be charged for.
Electronic and Physical Security
In this age of online and physical security threats, request a copy of the vendor’s qualifications and protections regarding online and physical security. Most access to reports is provided by electronic means and your BOLI vendor should have a plan to combat these threats.
Business Succession Plan
Ask the vendor for a copy of its business succession plan, in the event of a change in control or event affecting company leadership.
List of Pre-Purchase and Post-Purchase Services
Request a copy of the pre- and post-purchase services provided by the BOLI vendor, and the fees associated therewith. These might include:
- Monthly electronic reports with suggested General Ledger Entries for both Benefit Accounting and COLI Accounting
- General Ledger Adjusting Entries for Plan Events
- Detailed Records of all Prior Period Accounting Transactions
- Comprehensive Benefit Plan Administration Manual
- Testing for Concentration of Risk Compliance
- Testing for Lending Limits Compliance
- Social Security Sweeps to Track Deceased Former Employees
- Review of Carrier Ratings and Financial Profile
- E-mail Notification of Change in Carrier Ratings
- Periodic Analysis of Percentage of Insured Persons Still Employed
- Updates on Applicable Tax, Accounting and Regulatory Issues
- Toll-free Phone Access for Corporate Management and Plan Participants
- Participant Benefit Statements
- On-Demand Data for Audits
- Assistance in Preparing Responses to IDRs
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