Cross-selling expectations are often created by banks and incorporated in the pro-formas of the agreement to attain valuation expectations. Then, in the years after the closing, both bank and agency are disappointed in the results, even when overall cross-selling performance has improved.

The bank should always set cross-selling goals with the assistance of the agency and be conservative in the early years following the deal, permitting cross-selling to gain momentum over time.

Thou shall celebrate incentive compensation.

The insurance agency tradition is “You eat what you kill.” Banks should preserve and breed this culture by providing incentives to bank employees for referrals. Referrals should be part of their jobs and, likewise, part of their compensation program, within any restrictions imposed under some state laws.

Thou shall not kill the golden goose.

Agree on a sound producer compensation plan before closing the deal, and live with it afterwards. Because producer compensation is the highest single category of expense in an agency, it is often the first item considered for cuts when budgets get tight. Produce or perish should be the mantra and the basis for the plan.

Thou shall not impose bureaucracy.

Producers cannot spend time with existing customers, prospect for new customers or close new deals if they do not have the time. Try to eliminate unnecessary meetings that restrict time available for production.

Thou shall not expect to leverage bank efficiency.

Accept that an insurance agency will not improve the banks efficiency ratio. Instead, the bank should focus on attaining return-on-investment and return-on-assets targets.

Thou shall not shed the agency automation system for the sake of centralization.

Agency financial reporting and management system software is designed for the business and provides important management, customer and policy information, premium receivable and payable, and statistical operating comparisons.

Thou shall understand that earnings will be inconsistent.

Regardless of the effort put into managing and projecting contingent income, it will not show a pattern that increases month after month, quarter after quarter, as the bank expects its own earnings to increase. For one thing, contingent income, or insurance company underwriting profit shared with insurance agencies, is paid in the first quarter, based on the prior-year results. For another, insurance renewals and new business production are not spread evenly throughout the year.

Thou shall understand and embrace managing to a plan.

Agencies should understand that the regimented planning process required by the bank will improve their business, despite the short-term pain. Furthermore, agents must recognize that a plan in a banking environment is a promise that is signed in blood that will be actively monitored.

Thou shall plan on change.

Agency principals should not tell their producers and staff that nothing will change. No matter what promises are made at the closing, bank managers and bank strategy will change. Agencies must recognize that, over time, the bank may seek to modify items such as organizational structure and employee benefits.

Open communication between the bank and the agency is the only way that such changes can evolve from a broken promise to a prudent business decision.

Thou shall acquire a foundation agency.

By acquiring an agency that had sufficient quality to remain independent, but is looking at the acquisition by the bank as a strategic opportunity, the bank will significantly improve its chances of success. It is important to do a thorough job of screening the candidate agencies and to acquire an agency that will enhance the banks image and grow profitably without assistance from the bank.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 19, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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