Entering the insurance business may not be right for every bank. (iStock)

In my August column, I discussed how the Gramm-Leach-Bliley Act enabled banks to enter the insurance business and to partner with agents and brokers for their mutual benefit. I reached out to people in these industries to ascertain whether this power was being used to its full potential, some of the obstacles to doing such business, and whether the ability to sell insurance has generally been beneficial to lending institutions. This month, we delve further into those discussions to learn exactly which strategies work, which don't — and why. John Romano, senior vice president at The Dime Community Bank in the New York Metro area, previously served as vice president retail officer with Bank of Smithtown in Long Island, N.Y., and played a key role as part of the team to establish a joint-venture insurance brokerage with my agency. A few years later, the bank formally acquired the agency, which reported to Romano when he became president and COO of the bank. I became president/CEO of the agency and remained as a member of the bank's board of directors. Together, we built a very effective and profitable bank insurance team. Romano says banks should always look at ways to enhance revenue streams, and insurance is a natural extension of value-added services clients need and want. Understanding "the power of renewals," he notes, is paramount to understanding how the income can grow. But entering the insurance business may not be right for every bank. Over the past 20 years, Romano has seen bank cultures evolve to become more relationship-based, but notes that many banks can still be rigid and inflexible. Based on his own track record, he feels that banks can be successful in the insurance business and that the best method for bankers to enter the business is to partner with a small or mid-size agency, preferably first as a joint venture to get acclimated. Ted Mageau of Main Street Planning Group, an independent wholesale insurance general agency in Holbrook, N.Y., offered his opinions on how Life insurance, long-term care, long-term disability and employee benefits can help a bank-owned agency become a true multi-line agency and serve all the client's needs. I first worked with Mageau when he was the MetLife director of brokerage operations and I was CEO of my agency. Mageau became vice president/director of Life and Employee Benefits, heading up the Life & Benefits Division of our bank-owned agency. Mageau was the right person to ask, as he had been an insurance company executive with both banking and insurance expertise. "Banks probably have benefited more than agents and brokers have by getting into the insurance business," he says. "So have insurance companies, by expanding their channels of distribution." Mageau's own experience in bank/insurance cross-selling has been that he has seen more failures than successes. But he still firmly believes that banks and agents and brokers can become more profitable by creating a culture of identifying bank customers to introduce to insurance producers. "Bank employees should not be forced to become insurance salespeople," he stresses. Rather, bank leadership has to let agents and brokers do what they do best, and understand that financial planning is consultative — not transactional. Mageau believes that many on the banking side feel that insurance premiums are cutting into customers' deposits, but his perception is that most asset sales are from resources outside the bank. He experienced firsthand the success of a bank-owned agency where the leadership team of the bank, the insurance agency and the board of directors were in sync and shared the same goals and culture. "If the leadership is on board," he adds, "the opportunity for achieving success and high profitability will happen." When Executive Director Deanne Marino took over the leadership of the Bank Insurance Council (BIC, formerly the American Bankers Insurance Association), she committed to serving the needs of banks in the insurance business, and to become a valuable resource to banks in and considering entering insurance. Marino and her team at BIC understand the value that being in the insurance business affords lending institutions and their customers that want relationships with banks that offer advice on banking and insurance. This all builds upon the trust and confidence clients feel towards their bank — especially with community banks. Since Gramm-Leach-Bliley, Marino says, clarity and a level playing field have been brought to banks in insurance. Banks look at opportunities for non-interest income, like insurance, to stabilize revenue because insurance is not cyclical and renewal commissions are level. Marino believes banks that develop the ability to cross-sell will be successful. Her team is committed to bank distribution of insurance, and predicts more community banks will choose insurance as a viable option for growth and profit. Marino has also initiated outreach to be a resource for agencies to access BIC to begin a bank relationship. Agents can contact BIC to find out what banks might be active in their area, and learn what resources they can access. Tim Dodge, assistant vice president of research for the Big I of New York, says "the enactment of Gramm-Leach-Bliley has been most beneficial to agents — and banks aren't complaining, either. Further, there are no signs of it slowing down." Independent agents and brokers are aging, he notes, and many of them don't have succession plans in place. Banks are a viable option for a principal's exit strategy, but there is competition for agency acquisitions from venture capital firms and other players. One of the obstacles to success, Dodge says, occurs when banks try to run the agency instead of trying to learn how the agency works. Agency personnel, he explains, should be more aware of increasing compliance concerns that banks have to deal with. He agrees that bank employees should not be forced to sell insurance, but should learn to identify prospects to refer. I also reached out to Jim Campbell, partner with Reagan Consulting and leader of the firm's bank-insurance advisory practice for more than 20 years. There are at least two amazing things about Jim: One, he has served as lead advisor on more than 50 bank-insurance M&A transactions, and two, he looks the same as when I first met him more than 20 years ago in Bobby Reagan's home in Buckhead, Ga. Campbell says Gramm-Leach-Bliley "has been very beneficial to banks, providing clarity, consistency and a clear path to compete in the insurance brokerage business." Those instances showing mixed results were mostly caused by inconsistent execution. He points out that 12 of the top 100 brokers are banks today, and that most banks, especially community banks, benefited with high non-interest income. Results among insurance agencies have ranged from very good to below expectations, says Campbell, who feels the major obstacles to banks becoming more successful arise from poor execution. Leadership at the bank and the agency need to plan for the transition. Another priority is to have a plan to recruit and develop production talent. Ultimately, organic growth will be the key to insurance success. Campbell remains bullish on banks in insurance because banking and insurance are complementary. He believes community bank and insurance business models are similar, offering good alignment, and says banks are underachieving in the insurance brokerage business and need to be more thorough in building insurance agency platforms and managing the process. |

A review of what works

Here's the consensus on what works... The cornerstone for success rests entirely on leadership. From the top of the bank to the board of directors, all management — and the agency's leadership — must be committed to success. The bank's leadership needs to have a true understanding of how the agency makes money and the power of renewals, while agency leadership needs to understand the bank's compliance burdens. Due diligence on the agency must be thorough and done in advance of any acquisition. In instances in which a bank acquired another bank that included a bank-owned agency, even if the buyer bank already had an insurance agency, the insurance acquisition would not be as successful if full due diligence was not done on the agency. Due diligence should include a review of all producer contracts and agency agreements prior to any closing. An integration team tasked with preparation, planning, and execution should be created early in the process and should consist of key bank and insurance staff. The team should establish integration milestones and provide periodic reports to leadership. Leadership must embrace and not try to dispel the differences in culture. They should acknowledge the differences and educate all employees about why banks are transactional and insurance agencies are consultative organizations. A critical success factor is allowing the insurance agency to retain its sales culture and not to "become bankers." Insurance producers and executives should be allowed to increase their income as much as possible. Compelling joint calls between bankers — especially loan officers — with insurance people is key to sales success. Finally, give customers what they want: a total banking and insurance relationship. Everyone I spoke with shot down the idea of cross-training bank personnel to provide customers both banking and insurance services, and all agreed that asking bank employees to sell insurance just won't work. But of all the major reasons offered about why banks are not as successful in insurance as they could be, two stand out: It comes down to bank leadership and lack of effective execution. Overcome these, and any bank should become successful in selling insurance. Barry Seigerman ([email protected]) is an independent broker/producer. See also: 35 P&C insurance firms among Inc. 5000 fastest growing private companies The top-writing, premium leaders in 5 key P&C lines Part 2: The top-writing, premium leaders in 5 key P&C lines