Gaining momentum with insurance sales

 

Banking and insurance after Gramm-Leach-Bliley was supposed to be a natural pairing of risk management products with deposit and credit accounts, but has proven, if not unnatural, then certainly awkward for many U.S. bank holding company owners of agencies or brokerages.

“When it comes to the universal provider model in this country, the bloom is off the rose,” notes Deloitte Consulting principal, financial services, Don McNees of the bancassurance delivery system that’s done so well overseas, where banks are, in many countries, the service provider of all things financial.

Here, selling insurance effectively is all about specialization and overcoming organizational hurdles. Referrals between bank and insurance divisions, however, are becoming more typical, as we’ll see.

And, in a market this colorful and well branded, the division of market isn’t really a big mystery. Try, as a bank, to compete against State Farm, like a good neighbor, or even agencies like Geico (so easy a caveman can do it) and it’s clear that in many areas, the premiums aren’t just there for the taking.

Instead, as you’ll see in our quick-take cases beginning on p.48, the specifics of the strategy matter less than being specific in the first place.

“It’s really about knowing customers and taking advantage of natural synergies between core banking products and insurance lines,” says Michael White, CEO of Radnor, Pa.-based Michael White Associates.

Turf wars and other realities

Since GLB and for the time being, anyway, it is the case that the notion of banks underwriting insurance is more “the little engine that might have but didn’t” than a rocketing freight train. Andrew Barile, Andrew Barile Consulting Corp., Rancho Santa Fe, Calif., has examined many deals over the years and consulted on dozens of others. To him and others knowledgeable enough to read the signs, the current industry topography has resulted from turf hostility.

Cases in highly publicized point: Citibank’s sale, in 2005, of Travelers and the follow-up, last July, of J.P Morgan Chase, which let go of life insurance and annuity underwriting businesses. More recently, the $155 billion-assets Citizens Financial Group, Inc., sold its three insurance brokerages to Chicago-based Hub Insurance.  Yet, in a trend-defying move, North Carolina-based BB&T announced over the summer that it plans to enter full-scale underwriting by opening American Coastal Insurance Company in Hollywood, Fla.

What’s behind the volatility? One executive, who asked not to be named, put it this way: “There have been cases where banks acquired agents, only to have carriers drop that agent as a distributor. Some smart insurance carriers have attempted to fight back by creating product especially for the BHC-owned agency. It’s done to placate, but you’ll notice they don’t offer the flagship product for that agency.” Another also said on a not-for-attribution basis that insurance companies may snap up the right sort of bank. Or, they might seek to private label traditional bank products, being their own brand of universal provider. He sees the insurance carriers, not banks, being the big post-GLB winners of the financial super market sweepstakes.

“Banks have figured out they don’t want to own risk,” says Bill Bradway, managing director of Bradway Research, Framingham, Mass. “They’ve focused instead on picking up middlemen and becoming distributors.”

While performance is still spotty, with doers and “also rans,” banks in aggregate have demonstrated a knack with commercial P&C lines and workman’s compensation or specialty lines.

Reading the ABIA numbers

Banks as targeted distributors was a key theme in the latest addition of an annual report published jointly on behalf of the American Bankers Insurance Association, an ABA affiliate, by Michael White and Seattle-based Symetra Financial, a provider of retirement- and employee benefit-plans as well as life insurance and annuities.

Examining trends in fee income for the sixth year, the report notes that although total insurance revenue was slightly down from $44.1 billion to $43.5 billion in 2006, brokerage fee income was up 10.6% where BHCs earned a record $12.13 billion. (This compares with fee income of $4.99 billion in 2001.)

Fee income is defined in the ABIA report as coming from brokerage commission and/or underwriting income, as well as by non-insurance related sources such as investment fee income, mutual fund and annuity revenues.

The biggest players accounted for $11.97 billion or 98.6% of that total. Top performers included such marquee names as Ill.-based HSBC North America Holdings Inc. and Calif.-based Countrywide Financial. Yet, the giants weren’t the only ones who made gains. 

Growth in sales also occurred in the broader over-$10 billion asset class, which experienced 12.2% growth, and among providers in the asset class of $1 to $10 billion, which grew insurance fee income 10.9%. And, better than two in three, or 66.8%, top tier or regulatory top-holder BHCs with $300 million or more in consolidated assets reported participating in insurance activities.

In the aggregate, underwriting income was negatively impacted in 2006 by softening of property-casualty premiums and declines in some agencies’ contingent commissions.

Otherwise, bankers in the U.S. have had to rethink their ownership models and, down in the trenches, explore new affinities between traditional bank and insurance products as they adjust the selling process.

Bradway, who has issued his own benchmark study on profitable banks, admits that while his methodology doesn’t show a strong correlation between insurance activity and profitability (that is, the best performers in his study had little or nothing to do with insurance), his strong performers, like those that made Michael White’s list, also had the traits of operating with distinct purpose, possessed a value-driven sales process, controlled cost, and adopted effective automation. “Banks might tap class B and C construction loans or real estate loans,” says Bradway. “Certainly there is opportunity to cross sell insurance related to those projects,” he explains, adding, “that’s how it’s done.”

John Del Santo, managing director of Accenture’s insurance practice, based in San Francisco, agrees that winners have, in addition to such management 101s as top down buy-in, invested to varying extents in CRM, risk assessment, and sales automation. “When you think of it, midsized banks have tended to do well traditionally because they have a deep knowledge of their customer base,” he says, mentioning Union Bank of California as a standout example of a company that is tapping the insurance needs of entrepreneurs. “IT can help the bigger banks compensate for their size to some extent and figure out their segmentation.”

Product knowledge required

Consider that when it comes to banks moving into insurance, they have had to grapple their way around a rich product set with tricky—and sticky—distribution networks populated by knowledge specialists. Still, banks are  doing so because insurance can lead to stronger client bonds with an institution, says Del Santo.

Going forward, say experts, the wealth management/retirement stratum will be a keen area of interest for many banks. Michael White notes that many bankers will want to help mass affluent types preserve wealth and engage in estate planning as many, many baby boomers begin to hit retirement.

Terence Martin, vice-president and life insurance analyst with Conning Research and Consulting, Hartford, Conn., agrees that this demographic, personal-line niche is showing a green light.
 
“Any bank that can stand out by filling in gaps in mass affluent coverage and let consumers manage their entire profile of risks, protecting their home and key assets, should do well,” says Martin.

However tough the competitive tactics and environment, many banks are staying the course and, if not exactly getting religion on universal methods, they aren’t backing away from their commitment to insurance operations. BJ

 

The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0907/index.php?startid=46

 

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