Bank/agency marketing

Rough Notes, Dec 1999 by Carcione, Sandra Grant

Is the bloom off the rose?

When it comes to marketing relationships between banks and insurance agencies the initial enthusiasm seems to be fading for some independent agents; however, those with closer ties with banks are surprisingly happy with the result.

While banks had dabbled in insurance for years with credit, mortgage life and annuities, the landmark court case in 1996, Barnett Banks u. Nelson, opened the way for many more banks to sell insurance. Likewise, federal legislation that would dismantle outdated merger and marketing regulations between banking, insurance and securities firms is on the verge of finally being passed by Congress.

Meanwhile, there have been many different kinds of marketing experiments-on-site kiosks and referral programs, telemarketing, direct mail and others-between banks and insurance agencies ... and there will be many more. In addition, many financial institutions have purchased or invested in insurance agencies.

According to several independent agents, however, cultural and marketing differences have created frustrations and problems with the more casual relationships.

Problems abound

Glenn Horton of Horton Insurance Agency in Orland Park, Illinois, says, "Banks want an 'insurance department,' but they are reluctant to give agent partners the latitude we need to actively market our products. Horton Insurance Agency has about $22 million in revenue and 225 employees.

"In one S&L deal to sell homeowners coverage, we saw an opportunity to approach mortgage applicants," he says, "but the S&L didn't want us to talk to them until they were already on the books and only if they called to make a change of some sort. Often, bank management reacts negatively to anything related to selling." Despite the frustrations, however, Horton admits that his agency has some deals currently in the works to sell personal lines through area financial institutions.

Agents say that greed on the part of banks has soured more than one budding relationship. "We ventured into an arrangement to sell personal lines with one bank ," adds Dave Heagerty of Rose & Kiernan, Inc., in Albany, New York, "but they wanted a disproportionate share of the commission. Other banks we contacted also wanted too big a piece of the pie." Rose & Kiernan has nine locations throughout upstate New York and premium volume above $100 million.

While Rose & Kiernan walked away from some opportunities, the agency is still exploring other activities with banks. "One possibility would be to use an electronic medium where our agency system and the bank's system can communicate with each other directly," says Heagerty.

Ownership/joint ventures have a better chance

Closer relationships-where a bank buys an agency or invests in one-seem to be working out much better for those parties involved than do more casual marketing arrangements. Financial commitment seems to be the main issue.

For example, John Klecha of Damman Insurance Associates, which was bought by the Webster Bank in Waterbury, Connecticut, about 18 months ago, says that there has to be sufficient economic benefit AND penalty built into the relationship if it is going to work. In other words, both parties have to have "skin in the game," as Mecha puts it. Damman Insurance Associates' two offices produce $75 million in premium. Webster Bank is a $9 billion regional thrift that is revising its balance sheet to be more like a commercial bank.

Equal status with bank departments is another important ingredient, according to Mecha. Webster has integrated insurance as a line of business on a par with commercial loans and other products. "My boss is on the executive committee with other department heads," he says. "To make this work, you have to have commitment at the highest levels within the bank and the agency."

Klecha asserts that selling the agency to the bank was a win-win situation that adds new meaning to the phrase "cross-selling." "We've added 300,000 plus personal lines prospects and 30,000 plus commercial prospects through this relationship," Klecha says. "While it has taken a lot of hard work to get our sales program up and running, we're already seeing successes."

What about the so-called greed factor referenced by some agents? "Financial commitment requires negotiation," says Mecha. "In a simple marketing arrangement, you're too dependent on altruism to trade leads. When there are deeper financial commitments, such as ownership or a joint venture, it's all in the family and we have to work together to build business plans."

Addressing cultural differences

Understanding differences in marketing style and culture is critical to success, says Bill Gordon of Community Bank Insurance Brokers (CBIB) in Albany, New York. "Banks are used to a transactional environment-sales happen right away and in real time. In contrast, insurance sales can take a long time-you have to wait for expiration dates, etc." CBIB is a joint venture established a year ago between Jardine Group Services (part of Jardine Lloyd Thompson, a large international insurance broker) and Cohoes Savings Bank, which has 21 branches in the area. CBIB serves more than 1,700 policyholders who pay premium in excess of $1.6 million.